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INDUSTRIAL COMBINATIONS AND TRUSTS 



•The 



THE MACMILLAN COMPANY 

NEW YORK • BOSTON • CHICAGO 
DALLAS ■ SAN FRANCISCO 

MACMILLAN & CO., Limited 

LONDON • BOMBAY • CALCUTTA 
MELBOURNE 

THE MACMILLAN CO. OF CANADA, Ltd. 

TORONTO 



INDUSTRIAL 
COMBINATIONS AND TRUSTS 



EDITED BY 

WILLIAM S. STEVENS, Ph. D. 

Columbia University 



"^tm fork 

THE MACMILLAN COMPANY 

1913 

All rights reserved 



^^'A 



OoFnoGHT, igig, 

»r THE MACMUJLAN COlvrPANY 

Set up sad efiactxctyped. Published January, 19 13. 



PRESS OF T. MOREY &: SON 
OREENFIELD, MASS., U. 8. A. 



©CLA332157 



TO PROFESSORS P:^TTEM, McCEEH, 
MEADE AND JOHNSON ©F THE 
WHARTON SCHOOL, UKPfl^SITY 

OF PENNSYLVANIA^ TEE. MDHDR 
DEDICATES THIS YOLUME OF 
READINGS, IN GRATEFCOL l^EMEM- 
BRANCE OF SYMPATHY"^ €mjm~ 

SEE AND EMCOUSL^GKMEMT. 



PREFACE 

During the last two or three years while the editor of this volume 
was giving careful study to the subject of Trusts, he became more 
and more forcibly impressed by the need of a presentation of the 
subject that should be strictly impartial, that should advocate no 
theories, but yet should present the problems that arise in relation to 
Trusts comprehensively, and as they are. The realization of this 
need was increased by the fact that a large number of writers have 
shown the disposition to confuse the problems to which the Trust 
gives rise, with those that develop in connection with corporations 
and large scale production. 

The publication of the Steel and Interstate Commerce Com- 
mittee Investigations bridged many of the chasms which, in the 
opinion of the editor lay in the way of a satisfactory treatment of 
the subject from source material. Thereupon it was decided to 
attempt the present volume, a book that should not give the reader 
a second hand knowledge of the Trusts, but which should place be- 
fore him the original documents themselves: poohng. Trust, factors 
and international agreements; court decisions and laws against 
Trusts; Trust methods of fixing prices, eliminating competition and 
restraining trade; the dissolution plans of dissolved Trusts; lease and 
license agreements of representative patent monopoHes; and the 
views of eminent business and professional men as to the proper 
methods of handling this gigantic problem. 

Throughout the preparation of the volume two purposes were 
held steadily in mind. The first was to design a volume that should 
place within the reach of the students in courses in Trusts in our 
colleges and universities, material of which much is, as the editor 
knows from personal experience, only too often difficult of access 
or else altogether unavailable. The second purpose of the editor 
was the collection of such a set of materials as would afford the 
ordinary reader who chances to be interested in Trusts, a fair 
knowledge at first hand of the historical development of the Trust 
movement in the United States, and a thorough comprehension of 
those problems in regard to them that the country is facing to-day. 



viii Preface 

The arrangement of the book has been devised by the editor 
with the idea, that, should it satisfactorily serve the ends for which 
it is designed, it may be possible to add new readings from the 
mass of material that is steadily accumulating upon the subject. 

The editor wishes to make his acknowledgments to Dr. McCrea 
of the Wharton School, University of Pennsylvania, for valuable 
suggestions and criticisms in regard to head notes and to Mr. Lewis 
Abbott, a graduate student in the Wharton School, who in con- 
junction with the editor read the manuscript proof. Grateful 
acknowledgments are also due to Mr. O. J. Field of the Depart- 
ment of Justice for his prompt courtesy and unfaiUng kindness 
in suppl3dng required documents and replying to numerous re- 
quests for information. The editor also desires to mention his 
obHgations to Senator Clapp and Representative Stanley, each of 
whom furnished the editor mth several copies of the investigations 
of which they were, respectively, in charge. 

WILLIAM S. STEVENS. 
Unity, Maine, 
September, 191 2. 



CONTENTS 



CHAPTER I 
Specimens of Early Pooling 

PAGE 

Note I 

EXmBIT 

1. Articles of Association of the Manufacturers of Gunpowder 2 

2. Proceedings of the Kentucky Distillers at their Meeting in Louisville 4 

3. Agreement of Envelope Manufacturers 10 

CHAPTER II 

Representative Trusts 
Note 15 

EXHIBIT 

1. Standard Oil Trust Agreement of 1879 14 

2. Standard Oil Trust Agreement and Supplemental Trust Agreement 

of 1882 17 

3. Deed, The Sugar Refineries Co 27 

4. Distillers' and Cattle Feeders' Trust 36 

CHAPTER III 

Legislative Opposition to the Trust 

Note 43 

exhibit 

1. The Sherman Anti-trust Law 43 

2. Kansas 45 

3. Kentucky 46 

4. Michigan 48 

5. North Carolina 50- 

CHAPTER IV 

Judicial Attack on the Trust 

Note 52 

exhibit 

1. State ex rel. Attorney v. Standard Oil Company 52 

2. States V. Nebraska Distilling Company 57 

3. People V. North River Sugar Refining Company 61 

ix 



X Contents 

CHAPTER V 
The Holding Compa^ty 

PAGE 

Note 67 

Group I. Power of One Corporation to Hold Stock in Another 67 

EXHIBIT 

I, De La Vergne Refrigerating Machine Company v, German Savings 

Institution 67 

Group 2. Difference between the Trust and the Holding Company. . . 73 

EXHIBIT 

I. Standard Oil changes from a Trust to a Holding Company 73 

Group 3. Holding Company Laws . , 78 

EXHIBIT 

1. State of New Jersey 78 

2. State of New York 79 

3. State of Delaware 79 

4. State of Maine 79 



CHAPTER VI 

FORilATION or THE UNITED STATES StEEL CORPORATION 

Note 81 

EXHIBIT 

1. Testimony of John W. Gates 81 

2. Testimony of Elbert H. Gary 86 

3. Testimony of Chas. M. Schwab 95 

4. Testimony of Andrew Carnegie 99 



CHAPTER VII 

Factors' Agreements 

Note 118 

EXHIBIT 

1. Table and Stair Oil Cloth Association 118 

2. American Tobacco Company 127 

3. National Wall Paper Company 130 

4. American Sugar Refining Company 132 

5. United States Rubber Company 133 

6. Standard Sanitary Manufacturing Company 138 

7. Excerpts showing the Operation of the Factor's Agreement of the 

American Tobacco Company 145 

8. Dr. Miles' Medical Company v. John D. Park & Sons Co 149 



Contents xi 

CHAPTER VIII 

International Agreements 

PAGE 

Note i6o 

EXHIBIT 

1. Agreement of the American Tobacco Interests and the Imperial To- 

bacco Company, Limited, relative to the Limitation of the Sphere 
of Operation of each, and the Transfer of Ogden's Limited i6i 

2. Agreement made between the American Tobacco Company Interests 

and the Imperial Tobacco Company, Limited, relative to the 
control of business by the British American Tobacco Co., Limited. i68 

3. International Agreement in the Explosives Trade 176 

4. Aluminum Company of America 183 

CHAPTER IX 

Pools and Associations 
Note 185 

EXHIBIT 

1. Steel Rail Pool 185 

2. Constitution and B5'^-lav/s of the Michigan Retail Lumber Dealers 

Association 188 

3. Fundamental Agreement of the Explosive Trade 195 

4. Addyston Pipe Pools 205 

5. Extracts from the Constitution and By-Laws of the Coal 

Dealers' Association of California 209 

6. Structural Steel Association of the United States 211 

7. The Steel Plate Association 219 

8. By-Laws of the Eastern States Retail Lumber Dealers i.\ssociation 225 

9. Naval Stores Agreement 229 

10. Bath Tub Combination 237 

11. Bath Tub Combination 240 

12. Memorandum of Agreement (called the Eastward Agreement) 

regarding the Trade between the Atlantic Ports of the U. S. A. 
and the Eastern Asiatic Ports 244 

CHAPTER X 

The Patent Monopoly 
Note 248 

EXHIBIT 

1. Lease and License Agreement of the United Shoe Machinery 

Company for certain Machines 249 

2. Exchange License Agreement of the Motion Picture Patents 

Company 259 

' 3. Crown Cork and Seal Company 266 

4. Sydney Henry v. A. B. Dick Company 269 



xii Contents 



CHAPTER XI 

The Absorption of the Tennessee Coal, Iron and Railroad Company 

PAGE 

Note 285 

exhibit 

I. Narrative of Judge Elbert H. Gary 285 



CHAPTER XII 
Methods of Competition and Restraint of Trade 

Note 312 

Group I 312 

EXHIBIT 

I. Company 312 

2. Company 315 

3. General Electric Company 316 

4. Company 318 

Group 2 318 

EXHIBIT 

I. Company 318 

2. Company 319 

3. E. I. du Pont de Nemours Powder Company 326 

4. American Tobacco Company 327 

5. International Harvester Company 329 

Group 3 329 

exhibit 

I. Company 329 

2. Company 331 

Group 4 333 

exhibit 

1. Explosives Trade 333 

2. Standard Oil Company 335 

3- Company 339 

Groups 341 

EXHIBIT 

1. Credit Agencies 341 

2. Report Committee on Trade Relations, Dealers' 

Association 343 

3. Agreement of the Association 346 

4. Report of Trade Relation Committee 348 

Group 6 349 

EXHIBIT 

1. Customer's Lists of the 's Assoc 349 

2. Circulation of Information 351 



idv Contents 

CHAPTER XV 
Efficacy of Dissolution 

PAGE 

Note 472 

EXHIBIT 

1. Results of the Tobacco Dissolution plan as claimed by the Peti- 

tioners 472 

2. Claim of the American Tobacco Company with respect to the 

Division of the Tobacco Business of the United States by Volume 
and Value 474 

3. Distribution of Factories and Principal Brands as claimed by the 

American Tobacco Company 476 

4. Distribution of Purchases of Different T}'pes of Tobacco with Esti- 

mate of Average Aggregate as claimed by the American Tobacco 
Company 478 

5. Claim of the Attorney General 479 

6. Objections of the National Cigar Leaf Tobacco Association, etc., 

to the plan of Disintegration, filed by the American Tobacco 
Company and Others 485 

7. Argument of Fehx H. Levy 498 

8. Claim of the Independents in Regard to the Distribution of To- 

bacco and Brands among the Tobacco Companies after Dissolu- 
tion 507 

9. Respondents Amended Return to the Alternative Writ of Manda- 

mus 516 

CHAPTER XVI 

Proposed Methods of Dealing with the Trust Problem 

Note 525 

exhibit 

1. President William Howard Taft 525 

2. Senator Robert W. LaFollette 530 

3. Senator John Sharp WilHams 537 

4. Senator Albert B. Cummins 540 

5. Judge Elbert H. Gary 548 

6. Andrew Carnegie 557 

7. James A. Farrell 559 

8. George W. Perkins 563 

9. Louis D. Brandeis 574 



Contents xiii 



PAGE 

3. "Yes" and "No" Lists of the Dealers' Association 352 

4. Circular issued by Dealers' Association to the Trade 353 

5. Ofl5cial Report of the Dealers' Association — 

New York, N. Y 353 

6. Association 354 

<^roup 7 355 

EXHIBIT 

1 . Trade 355 

2. Explosives Trade 356 

3- Company 357 

Group 8 365 

EXHIBIT 

I . Company 365 

2. Company 367 

Group 9 368 

EXHIBIT 

I . Company 368 

2. Company 371 

3. Consolidation Coal Company 373 

4. American Sugar Refining Company 377 

5. Gary Dinners 386 

6. of America 404 



CHAPTER XIII 

Recent Trust Decisions 
Note 407 

EXHIBIT 

1. Decree against the Standard Oil Company 407 

2. Decree against the American Tobacco Company 416 

3. Decree against the Powder Combination 424 

4. Decree against the Standard Sanitary Ivlanufacturing Co 429 

5. Decree of Injunction against the Southern Wholesale Grocers' Asso- 

ciation 433 

6. Decree against the General Electric Company 436 



CHAPTER XIV 

Methods of Dissolution 
Note 440 

EXHIBIT 

1. The Dissolution of the American Tobacco Company 440 

2. The Dissolution of the Standard Oil Company 462 

3- Dissolution of the Powder Trust 463 



IMPORTANT 

The editor desires to call attention to the following points: — 

1. The editor is alone responsible for the typographical work in the 
volume. So far as possible it was attempted to reproduce the docimients 
exactly as they were in the original. The editor beUeves that all the errors 
in speUing and construction have been duly noted. To have done the 
same with the very numerous errors in punctuation, use of parentheses, 
etc. etc., would have unnecessarily cumbered the pages. Such errors 
as are discovered therefore in this respect will probably be found to be 
errors in the originals. 

2. Some of the court decisions were necessarily taken from advance 
copies as at the time the volume was made up they had not been pub- 
lished in the reports. 

3. The paging in the Stanley and Interstate Commerce Committee 
Investigations differs somewhat in the first copies issued and the last. 

4. The title of the Interstate Commerce Investigation reads in original, 
sometimes "Hearing" and at others "Hearings." 

5. Lines and fictitious initials have been used instead of names in 
many places in Chapter XII. 

6. Examination of the document beginning on page 118 wiU show that 
it resembles both a pooling agreement and a factor's agreement. As a 
single contract the party of the first part is constituted a factor of the 
Table and Stair Oil Cloth Association. Several of such contracts, how- 
ever, were the basis of the pool. The document should be read both as a 
pooling and as a factor's agreement. 



INDUSTRIAL COMBINATIONS 
AND TRUSTS 

CHAPTER I 

SPECIMENS OF EARLY POOLING 

NOTE 

fTHE industrial combination and trust movement as a feature of 
otir national life may be said to date from the pools in the cordage 
industry about i860. These combinations were shortly succeeded 
in the middle of the sixties by the organization of the Michigan 
Salt Association, and the first anthracite coal combination appears 
to have been formed in 187 1 . The pools of the anthracite coal roads 
continued a more or less intermittent and spasmodic existence down 
to the passage of the Interstate Commerce Act of 1887. Both the 
seventies and eighties were characterized by numerous combina- 
tions of the same type. 1 Among these may be mentioned the West- 
ern Export Association/the United Refining Company, Gunpowder 
Manufacturers' Association, Kentucky Distilleries' Association, 
Wall Paper Association, Sand Paper Association, Upholsterers' 
Felt Association, Standard Envelope Company and others. 

Space permits the reproduction of only three documents showing 
the form of organization and methods of these early combinations. 
So brief an examination may be justified first, by the fact that these 
pools are now chiefly of historic interest, and second that their or- 
ganization and methods of operation have in nearly every case 
been substantially reproduced in more recent combinations whose 
agreements will be shown in other chapters. 

The first exhibit in the following pages is the pooHng agreement 
of the Gunpowder Manufacturers, which was adopted April 23, 
1872. In essence it is a simple agreement for the maintenance of 
prices. In the second agreement, that of the Kentucky Distillers, 
we have an example of a pool formed primarily to divide output 



2 Industrial Combinations and Trusts 

and limit production. In the third member of this group, the 
Standard Envelope Company, we have probably the most inter- 
esting combination of the three. The Standard Envelope Company 
was a Massachusetts corporation with a capital of $5,100, incor- 
porated by certain envelope manufacturers. It was a convenient 
method of harmonizing the interests of the different members, and 
was used as a medium for the pooling of profits and expenses. An- 
other and supplementary agreement provided an arrangement 
for equalizing and keeping prices at a fixed rate, and also for equal- 
izing losses and expenses. — Ed. 

Exhibit i 
articles of association of the manufacturers of gun- ' 

POWDER 1 

We, the undersigned. Manufacturers of Gunpowder, for the pur- 
pose of ensuring an equitable adjustment of prices and terms for 
sales of powder throughout the United States, hereby agree to the 
subjoined Articles of Association, to which we severally pledge for 
ourselves, and all under our control, rigid and honorable adherence. 

ist. — This Association shall be called "The Gunpowder Trade 
Association of the United States," and comprises all manu- 
facturers of Gunpowder in the United States, who now or hereafter 
may be admitted thereto; the present organization being composed 
of the following manufacturers, entitled to representation and vote 
at all meetings of the Association, as follows: 

E. I. Dupont de Nemours & Co Ten Votes. 

Hazard Powder Company Ten Votes. 

Laflin & Rand Powder Company. . . . Ten Votes. 

Oriental Powder Mills Six Votes. 

Austin Powder Company Four Votes. 

American Powder Company Four Votes. 

Miami Powder Company Four Votes. 

* United States of America v. E. I. du Pont, de Nemours and Company. In 
the Circuit Court of the United States for the District of Delaware, Gov't. Ex. 
No. 96-b. Pet. Record, Exhibits, Vol. i, pp. 476-479. The minutes of the same 
meeting that adopted this agreement show that a committee reported a scale 
of prices which was also adopted and made binding upon the Association. 
For a complete history of the powder combinations, see Stevens, Wm. S., 
Quarterly Journal of Economics, May, 191 2, Vol. XXVI, pp. 444-481. — Ed. 



Specimens of Early Pooling 3 

2d. — The officers of this Association shall be a President, 
Vice-President, Secretary, and Treasurer, to be elected by ballot 
on the first meeting of this Association, and annually thereafter, 
and who shall hold office until others are elected in their stead. 

3d. — It shall be the duty of the President to preside at all 
meetings of the Association, and on the written request of two 
members thereof, to call special meetings of the same. In case 
of his absence, the same duties will devolve upon the Vice-President. 
The Secretary shall attend all meetings of the Association, keep 
full record of their transactions, and issue such notices to the 
associates as the properly authorized officers may direct. The 
Treasurer shall have the custody of all funds belonging, to the 
Association. 

4th. — ^This Association shall meet quarterly: say in the first 
week in February, May, August, and November, of each year, 
at such time and place as may be agreed upon at the previous 
quarterly meeting, for the purpose of establishing prices if need 
be, of hearing and deciding appeals, and determining all questions 
relative to the trade that may be submitted to it. 

5th. — ^A Council of five persons, associates, of whom three 
(3) shall constitute a quorum, shall be elected by this Association 
at their first meeting for organization, and annually thereafter, 
holding office till the election of their successors, in default of such 
annual election. Such Council shall meet weekly (or at the call 
of the chairman) in the City of New York, or elsewhere, as a 
majority of Council shall decide. To said Council shall be referred 
all questions of discrepancy and deviations from prices in the 
different home markets, all complaints in writing of infraction 
of agreement by any agent of any associated company or firm; 
they shall adjudicate upon the same, and the decision by a majority 
of the Council shall be final; provided, that any associate ag- 
grieved by such decision may appeal to the next quarterly meeting 
of the Association, pending which he must submit to the decision 
of the Council. 

6th. — Any manufacturer of Gunpowder desiring to be admitted 
a member of this Association, may at any time signify his wish 
in writing to the President thereof; when upon admission and 
on his signing the Articles of Association, the said manufacturer 
is at once entitled to participate in its benefits, as he is likewise 
bound by its obhgations. No member of the Association shall 
withdraw from the same without having signified his intention so 



4 Industrial Combinations and Trusts 

to do, at least thirty days before such withdrawal, to the President, 
who shall at once call a special meeting of the Association. 

7th. — ^The minimum prices for powder of the various sorts 
required for the trade shall be estabUshed and regulated by this 
Association. 

8th. — ^Any funds necessary for the carrying out the provisions 
of these Articles shall be assessed by the Council upon the asso- 
ciates in proportion to the votes to which they are respectively 
entitled. 

9th. — These Articles shall not be altered or amended, except 
by a vote of two-thirds of the members of the Association at a 
regular quarterly meeting and after at least thirty days' notice 
of the proposed alteration or amendment. 

Exhibit 2 

proceedings of the kentucky distillers at their meeting 
in louisville, kentucky, may, 1888 1 

ist. Determine the quantity of whisky to be made in 1889. 
On this point 11,000,000 gallons is recommended as the maximum. 

2d. Of this quantity let there be distributed under the follow- 
ing rules 9,000,000 gallons, leaving 2,000,000 gallons as a reserve, 
to be placed in the hands of a committee of ten, consisting of two 
from each collection district, to be allotted in such quantities and 
to such signers as in the judgment of the committee may be re- 
quired to even up the shares of each, when any injustice, all facts 
duly and impartially considered, has been done under the rule. 

3d. Take the surveyed capacity of the distillers of the State, 
and, after excluding from consideration all houses with a daily 
capacity of less than 40 bushels, ascertain the percentage of capac- 
ity actually used for an assumed period of 156 days in producing 
the crop of 1886, if the distillery was not operated in 1887, or 
the crop of 1887, or an average of the two years, when no production 
was made in 1886 and 1887, the committee shall make a basis 
fairly and justly. 

4th. Having ascertained as above the actual percentage of ca- 
pacity used by each, multiply the surveyed capacity by this per- 
centage and thus ascertain the number of bushels required to 

^ House Report No. 4165, 50th Cong., 2nd Session, 1888, pp. 33-36. This 
agreement followed one of similar character adopted in June, 1887. — Ed. 



Specimens of Early Pooling 5 

have produced the quantity of whisky in a run of 156 days that 
each actually produced in 1886 or 1887, or the average as may be 
taken as the basis. 

5 th. Having thus equahzed all the houses and ascertained the 
relative number of bushels daily capacity, multiply this daily ca- 
pacity by 104 days and 434 gallons to the bushel, and ascertain 
the gallons each is entitled to make. 

Add these shares together, and if the total is less than 9,000,000 
gallons, increase the days from 104 to the number required to 
produce the 9,000,000. If the total exceeds 9,000,000 gallons, 
reduce the days to the number required to produce the 9,000,000. 

The different houses are entitled to make the shares thus ob- 
tained in such time during the season from July i, 1888, to July i, 
1889, as may suit their convenience. 

The committee will, after the above appointment is made, re- 
ceive applications for allowance out of the 2,000,000 reserved, 
fixing a date in the future by which time all applications are to be 
filed with the committee. The allotment will be made not to ex- 
ceed the 2,000,000 gallons in the aggregate, and in such quantities, 
if any, to each applicant as the facts presented may justify. 

6th. The committee shall furnish each distiller with a statement 
of the share to which he is entitled under the rule, and also a 
statement of the allowances, if any, made out of the reserve; said 
statements to be signed by the committee. 

7th. Five members of the committee shall constitute a quorum 
for business, but no allotment shall be made except at fixed time 
or times, of which ten days' notice must be given each applicant 
in writing. No member shall sit as a committeeman in considering 
his own application. 

8th. The distillers forming this agreement shall elect a board 
of trustees, to consist of seven members, whose duty it shall be to 
enforce the agreement. The committee described in sections pre- 
ceding this section shall be charged with the duty of obtaining 
to the agreement the signatures of such distillers as may be absent 
at the meeting, and shall, when this work is performed, deliver 
to the chairman of the board of trustees this agreement, and a 
statement giving the shares of each distiller. 

9th. The board of trustees shall, within ten days after their elec- 
tion, elect a chairman, and is hereby authorized and directed to 
secure an office in the city of Louisville, and to appoint a compe- 
tent secretary and fix his salary. The secretary shall keep a full 



6 Industrial Combinations and Trusts 

and complete record of the bond stock of the signers to this agree- 
ment, from reports received from each distiller, as directed in 
section lo. 

loth. Each distiller is requested and directed to send the sec- 
retary, when the ofl&ce is established, a full and complete state- 
ment of the 1886 and 1887 whiskies, by months, then in his dis- 
tillery bonded warehouses, and from the ist to the 5th of each suc- 
ceeding month, a statement of the withdrawals and deposits by 
months, together with a check for such an amount per barrel of 
deposits as may be fixed by the board of trustees as sufficient to 
pay all expenses, provided such rate shall not exceed 4 cents per 
barrel deposited in bond. 

11. A full and accurate account shall be kept of all moneys 
received and of all disbursements. The secretary shall furnish, 
not later than the 20th of each month, to each signer a full and 
complete statement of the bond stock of the signers by months 
and years, as of the last day of the preceding month. 

12. The agreement to be signed is in substance the same as that 
signed in 1888. The amount as determined by the committee as 
the share of each is to be placed opposite each name by the trustees 
from the statements furnished by the committee. The trustees 
shall then mail to each signer a statement setting forth the quantity 
placed opposite the name of each. If said quantity differs from 
that as shown in the statements furnished each signer by the com- 
mittee, said signer must at once report the fact to the trustees, 
who shall investigate and ascertain and correct the error, if any. 

13. The committee in allotting the reserve of 2,000,000 gallons 
will give the fullest consideration to signers that were most con- 
servative in 1886 and 1887, in order to give to such signers the 
proper reward for their consideration. 

In event of any dispute or controversy except as provided in the 
next section, arising between the committee or trustee and any 
party to the contract, the same shall be settled by arbitrators, 
to be selected as follows: one by the committee or trustee and one 
by the party, and these two an umpire, whose award shall be final 
between the parties. 

There shall be selected by the convention a committee of five 
men, one from each collection district, who shall be known as the 
board of appeal, to whom any party who deems himself aggrieved 
by any allotment of capacity may appeal, which appeal shall be 
made in ten days after notice of allotment and five days' notice 



Specimens of Early Pooling 7 

given to the committee from whom the appeal is prosecuted, and 
the decision of said committee to be made in ten days and be final. 

That the committee to obtain the signatures to the contract 
shall not deliver the same to the trustee until said contract shall 
be signed and agreed by 85 per cent, of distilling capacity of the 
State, excluding from such capacity those producing only high 
wines, alcohol, and neutral spirits. 

The delivery of the contract shall be conclusive evidence that 
said terms have been compHed with. 

That the allotment committee is authorized to employ a secre- 
tary and fix his salary for the time they shall be in existence. 

The following committees were then appointed: 

ALLOTMENT COMMITTEE 

Second District. — M. V. Monarch and Geo. D. Mattingly. 
Fifth District.— T. H. Sherley and R. W. Wathen. 
Sixth District — T. J. Megibben and William Adams. 
Seventh District. — E. H. Taylor, jr., and Jos. M. Kimbrough. 
Eighth District. — John B. Thompson and D. L. Moore. 

APPEAL COMMITTEE 

Second District. — R. Monarch. 
Fifth District. — Nicholas Miller. 
Sixth District. — E. W. Bramble. 
Seventh District. — James M. Saffell. 
Eighth District — Walter Bennett. 

The board of trustees for the ensuing year are: — Herman Beck- 
urts, J. M. Atherton, Nicholas Miller, D. L. Moore, Jas. McSorley, 
R. Monarch, S. J. Ashbrook. 

The following resolutions were offered and adopted: 

By Mr. Megibben : That the allotment committee is authorized 
to confer with the committee of the highwine trust, and if possible 
secure the stoppage of production of bourbons by said trust in 
this and other States. 

By Mr. Taylor: That a committee of three be appointed by the 
chairman to see the Commissioner of Internal Revenue, with a view 
to call his attention to and seek protection from vicarious manu- 
facture at registered distilleries, and the manufacture of what are 
known as "new process" whiskies in this State. 



8 Industrial Combinations and Trusts 

Committee appointed: E. H. Taylor, jr., T. H. Sherley, T. J. 
Megibben. 

By Mr. Sherley: Whereas, it is the practice of a number of dis- 
tillers, after the packages have been filled from the receiving cistern 
to force hot air into the packages, or by other processes to color 
the spirits and give them the appearance of older goods, the same 
being placed on the market as the regular bourbon or sourmash 
whiskies: Therefore be it 

Resolved, That all whiskies that undergo any treatment after 
they have been put into the barrels be known to the trade as "new 
process whisky," and should be so branded. Referred to special 
committee of three to lay before the Commissioner. 

By Mr. Atherton: Resolved, By the distillers of Kentucky, in 
convention assembled, that we are opposed to the repeal of the tax 
on fruit brandies as ruinous to our trade, opening the door to fraud, 
and destructive of the whole internal-revenue system. Also to the 
proposition to operate any distillery without the supervision of a 
Government store-keeper as now provided by law. 

The allotment committee under the Kentucky distillers' agree- 
ment for i888-'89 have organized by electing Col. T. H. Sherley 
chairman, and T. M. Gilmore secretary. 

In accordance with the distillers' agreement, which directs the 
trustees to organize within ten days after their election, a meeting 
of that body was called for 3 p. m. of the 2d instant at the office of 
the Circular, in this city. Those present were Herman Beckurts, 
James McSorley, John M. Atherton, and Nicholas Miller. F. S. 
Ashbrook, R. Monarch, and D. L. Moore were present by proxies. 
Mr. Herman Beckurts was unanimously elected chairman for the 
ensuing year, which office he accepted. T. M. Gilmore was elected 
secretary. 

CONTRACT 

Louisville, Ky., May 24, 1888. 

The undersigned do mutually agree and covenant each with all 
and every the other signers hereof and of certified true copies of 
the same as follows, to wit: 

First. It is for the pecuniary advantage of each and every the 
parties hereto that each and every the other parties should not 
make more whisky during the season from July i, 1888, to July i, 
1889, than is hereinafter set down opposite the signature of the 



Specimens of Early Pooling 9 

several parties as their agreed production during said distilling sea- 
son, which amount shall be fixed and determined by the committee 
of allotment selected and appointed and authorized to act in ac- 
cordance with the rules and regulations, as provided in the resolution 
adopted by the Kentucky distillers in convention assembled on 
May 24, 1888, and by the trustees, set opposite their signatures. 

Second. It is further agreed that the several parties hereto can 
and do enter into this agreement with the other parties hereto, 
and assume the obligations hereinafter expressed, upon the mature 
and deliberate conviction that it is for the pecuniary benefit of 
each so to do. 

Third. And the parties, in consideration of the premises and of 
$1 to each the other paid and of divers other valuable consideration 
each of them moving, do mutually agree and covenant that they 
will severally make during the distilling season from July i, 1888, 
to July I, 1889, the quantities of whisky to be determined and set 
opposite their signatures as hereinbefore provided; with full hberty 
and right, however, to each and every signatory hereto to manu- 
facture as much more whisky as he may choose upon the conditions 
hereinafter set forth. 

Fourth. If any party hereto shall conclude to make and does 
make whisky in excess of the amount so to be ascertained and set 
opposite his name, he shall and will pay, and hereby covenants 
and agrees to pay, within thirty days after the ist day of July, 1889, 
unto the trustees hereinafter named, a sum of money equal to 20 
cents for each proof gallon of whisky so by him made in excess of 
the production set opposite his signature; the same to be distributed 
by the said trustees unto the other signatories hereof not producing 
more than the amount set opposite their names as compensation 
to them for their refraining from so doing and to re-imburse to 
them the profit which they surrendered by not making a greater 
amount of whisky than is opposite their names set forth, and as an 
offset to the increased profits to such overproducer. The said dis- 
tribution shall be by equal pro rata among those not making more 
than is set opposite their names, based upon the contemplated 
production of each as set forth. 

Fifth. And the parties hereto recognizing fully the right of each 
to make as much whisky as he may choose, agree and covenant 
that the said sum of 20 cents per gallon so to be computed is a fair 
and just compensation and is fixed as the liquidated and indis- 
putable remuneration to be made by such producer to those parties 



lo Industrml Combinations and Trusts 

hereto who for his profit and at this request refrain from making 
more than therein by them indicated and thereby lose profit which 
they might other\\dse make. 

Sixth. That Herman Beckurts, D. L. Moore, R. Monarch, 
J. M. Atherton, James McSorley, Nick Miher, and S. J. Ashbrook 
are named as trustees, and they, or a majority of them, may sue 
for any such remuneration in their own names, as trustees for the 
benefit of those concerned; and all outlays and expenses, including 
counsel fees, shall be paid out of the fund as pro\dded in section lo 
of the resolutions adopted on May 24, by the distillers' meeting. 

Any vacancy occurring in said trusteeship by death, resignation, 
refusal to act, or other disability shall be filled by the other trustees. 

The trustees may call meetings of the signatories at any time on 
ten days' notice given through the United States mail. 

That no party to this agreement shall rent, lease, or otherwise 
dispose of the distillery property owned, operated, or controlled 
by him or them for the purpose of manufacturing therein any 
quantity of distilled spirits beyond the amount apportioned and 
alottedi to him or them hereunder; and anything done or device 
resorted to for such purpose or with such intent or effect shall 
render such party Hable for all damages as herein provided. 

Any signatory hereof shall have the right to transfer his allot- 
ment hereunder and the right to manufacture the same to any other 
signatory, in which case the signatory so acquiring may at his own 
distillery or that of the transfer manufacture such allotment in ad- 
dition to his own personal allotment. 

For the purpose of obtaining signatures to this agreement copies 
thereof may be circulated, each copy to be authenticated as a true 
copy by the chairman of the allotment committee, namely, T. H. 
Sherley, and signatures to such copies shall have full effect as 
though made to the original paper, and all such copies and the 
original shall be held and treated and have effect as a single paper. 

Exhibit 3 
agreement of envelope manufacturers 2 

This agreement, made this 21st day of June, 1887, between the 
Morgan Envelope Company, the Whitcomb Envelope Company, 

^ Thus in original. — Ed. 

2 Report of the Senate Committee on General Laws on Investigation Relative 
to Trusts, N. Y. Sen. Doc. No. 50, 1888, pp. 468-470. 



Specimens of Early Pooling ii 

the White, Corbin & Co., the Holyoke Envelope Company, the 
Plimpton Manufacturing Company, the Berhn & Jones Envelope 
Company, Samuel Raynor & Co., J. O. Preble & Co., and Lewis 
J. Powers, doing business under the name of Powers Paper Com- 
pany, parties of the first part, and the Standard Envelope Com- 
pany, party of the second part. 

Witnesseth: i. The parties of the first part hereby severally 
agree that within fifteen days after the first day of each and every 
calendar month, beginning with the month of August next, they 
or it will render a sworn statement to the party of the second part, 
addressed to its treasurer, of the total number of thousands of 
envelopes they, the said parties of the first part, respectively, shall 
have sold and dehvered during the previous calendar month, speci- 
fying in said statement how many of the envelopes so sold and de- 
livered by them or it, have been sold and dehvered to any of the 
other parties of the first part named in this agreement. 

2. The parties of the first part hereby severally further agree to 
pay to the Standard Envelope Company, on the fifteenth day of 
the same month in which such statement is to be made, by the terms 
hereof, a tax of fifteen cents upon each and every thousand en- 
velopes so sold and delivered by them or it, except upon the en- 
velopes so sold and dehvered by them or it to any of the other 
parties of the first part named in this agreement. This rate of tax 
may at any time be changed, by the written assent of any seven 
of the parties herein named as parties of the first part. It is under- 
stood and agreed, however, by and between the parties to this 
agreement, that no monthly statement is to be required and no 
monthly tax is to be paid upon the envelopes which are excluded 
from the terms and operation of the written agreement, of even date 
herewith, between the Morgan Envelope Company and twelve 
other manufacturers of envelopes, parties of the first part, and the 
Standard Envelope Company, part ^ of the second part. 

3. Whereas said Standard Envelope Company, by written in- 
strument, dated on or about April 30, 1887, has contracted with 
the firm of Lester & Wasley, of Norwich, Conn., for the purchase 
of all envelope machines to be made or sold by them during the 
five years then next ensuing (said Lester & Wasley having therein 
agreed not to furnish more than twenty-four machines during any 
one year), the parties of the first part hereby severally agree to 
purchase of said Standard Envelope Company, and to pay therefor 

^ Thus in original. — ^Ed. 



12 Industrial Combinations and Trusts 

the price of each machine named in said Lester & Wasley contract, 
for the number of m.achines that shall be allotted to said parties 
of the first part, respectively, by the directors of the said Standard 
Envelope Company, or in lieu of such purchase, if any party of the 
first part shall so elect, they or it, may decline to take any or all 
machines so allotted, and to pay said Standard Envelope Com- 
pany the sum of $500 for each machine so declined. 

4. To the performance of this agreement the parties hereto 
severally bind themselves, their and each of their executors and 
administrators, successors and assigns, for the term of five years. 
In witness whereof the various parties hereto have severally set 
their hands and seals, the day and year first above mentioned. 

(Here follows list of signatures.) 



CHAPTER II 
REPRESENTATIVE TRUSTS 

NOTE 

Since the pool was primarily only a gentlemen's agreement and 
its provisions and regulations were unenforcible through the courts, 
it possessed certain disadvantages. But since the pool has persisted 
throughout the entire course of our industrial history since the Civil 
War and has been the form under which some of our more recent 
combinations have operated, it may be asserted that these dis- 
advantages have been somewhat overestimated. Yet it is none the 
less true that there were certain undesirable features connected 
with it and very shortly a new form of combination was devised 
known as the Trust. For many years it was supposed that the 
Standard Oil Trust of 1882 was the first agreement of this character. 
More recent revelations, however, have shown that the original 
Trust agreement was made by this company in 1879. In conse- 
quence, both the agreement of 1879 and that of 1882 have been 
included under this group. 

The Standard Oil Company did not long retain the monopoly 
of this new scheme of combination. Others saw plainly the ad- 
vantages it afforded, and speedily adopted it. In the latter part 
of 1884 the American Cotton Oil Trust was organized in the State 
of Arkansas. It embraced some eighty-five concerns doing business 
throughout the South. In 1887 three other Trusts were formed. 
The Distillers' and Cattle Feeders' Trust was a successor to the 
Western Export Association, a pool of the whisky manufacturers 
north of the Ohio River which had been organized in 1881. The 
others organized in the same year were the National Lead Trust 
and the Sugar Trust. The technical name of the latter combination 
was the Sugar Refineries Company. It may also be noted than an 
abortive attempt was made to organize the Cordage Industry into 
a Trust. The Trust agreements reproduced here are all at the 
present time well known documents but it has none the less seemed 
advisable to include them in the space of this book for sake of com- 
pleteness and for purposes of analyzation. — Ed. 

13 



14 Industrial Combinations and Trusts 



Exhibit i 

standard oil trust agreement of 1879 ^ 

WTiereas the Standard Oil Company of Cleveland, Ohio, holds 
the possession of certificates for certain stocks and interests which 
it is desirable to distribute among the parties entitled thereto; 
and whereas such stocks and interests now stand in the names of 
several persons, and it is desirable for convenience in di\ading them 
that all be transferred to trustees, and that the same be so trans- 
ferred by the Standard Oil Company, by each party holding 
the same, and by every person holding or claiming an interest 
therein. 

Now, in consideration of the foregoing, and of the sumi of one 
dollar to us paid, and other considerations satisfactory to us, we, 
the undersigned, hereby grant, assign, transfer, and convey all 
our right, title, and interests and all the right, title, and interest 
of each and every one of us of whatever name and nature in and 
to all and singular the following-described stocks and interests, 
to wit: 

Entire capital stock of Long Island Oil Company. 
2,700 shares capital stock of Devoe Manufacturing Co. 
Entire capital stock of Charles Pratt & Co. 
5,059 shares capital stock of Baltimore United Oil Co. 
525 shares capital stock of Keystone Refining Co. 
Entire capital stock of Sone & Fleming Manufacturing Co., 
Limited. 

Entire capital stock of Atlantic Refining Co. 

Entire capital stock of Standard Oil Co. (of Pennsylvania). 

Entire capital stock of IModel Oil Co. 

1,775 shares capital stock of American Lubricating Oil Co. 

Entire capital stock of Camden Consolidated Oil Co. 

2,268 shares capital stock of Central Refining Co. 

700 shares capital stock of Maverick Oil Co. 

Entire capital stock of RepubKc Refining Co. 

400 shares capital stock of Waters-Pierce Oil Co. 

^ Standard Oil Co. of New Jersey et al. v. U. S. of America. In the Supreme 
Court of the United States, Brief for the United States, Appendix A, Vol. I, 
pp. 414-416. 



Representative Trusts 15 

300 shares capital stock of Consolidated Tank Line Co. 

Entire capital stock of American Transfer Co. 

41,590 shares capital stock of United Pipe Lines. 

Entire interest in and capital stock of Paine, Ablett & Co., 
Limited. 

i45/i75ths of entire interest in and capital stock of Eclipse 
Lubricating Oil Co., Limited. 

3/4ths of entire interest in and capital stock of H. C. Van Tine 
& Co. (Limited). 

7/8ths of entire interest in and capital stock of Galena Oil Works 
(Limited). 

Entire capital stock of Smith's Ferry Oil Transpn. Co. 

14,713 (old) shares stock and interest in Producers' Consoli- 
dated Land & Petroleum Co. 

Special investment at Oil City, Pa. 

Business and property of Star Oil Co., Erie, Pa. 

Business and property of Warden, Frew & Co., Philadelphia, 
Pa. 

Entire capital stock of Philadelphia Refining Co. 

Entire capital stock of Olean Petroleum Co. (Limited). 

Entire capital stock of Columbia Conduit Co. and also all 
other interests of every kind and description held by the 
Standard Oil Company or in which it has any interest which 
can be or by right ought to be divided and distributed among 
the parties entitled thereto, without affecting its proper, le- 
gitimate, and efficient operations as a corporation, to Myron 
R. Keith, George F. Chester, and George H. Vilas, as trust- 
ees, to have and to hold said stocks and interests to them and 
their survivors and successors, in trust nevertheless for the 
following purposes, to wit: To hold, control, and manage 
the said stocks and interests for the exclusive use and benefit 
of the following-named persons and in the following proportions 
named: 

Charles Pratt 2700/35000 thereof. 

Horace A. Pratt , 15/35000 " 

Henry H. Rogers 910/35000 " 

C. M. Pratt 200/35000 " 

Wm. Rockefeller 1600/35000 " 

O. B. Jennings 818/35000 " 

W. H. Macy 59/35000 " 



i6 Industrial Combinations and Trusts 

W. H. Macy, jr 28/35000 thereof. 

Estate of Josiah Macy 892/35000 " 

A. J. Pouch 178/35000 " 

J. A. Bostwick 1872/35000 " 

Warden, Frew & Co 485/35000 " 

Chas. Lockhart 1408/35000 " 

Wm. C. Warden 1292/35000 " 

O. H. Payne, trustee 61/35000 " 

S. V. Harkness 2925/35000 '' 

H. M. Flagler 3000/35000 " 

Daniel Bushnell 97/35000 " 

Jos. L. Warden 98/35000 " 

J. J. Vandergrift 500/35000 " 

F. A. Arter 35/35000 " 

Gustave Heye 178/35000 " 

L. G. Harkness 178/35000 " 

Hanna & Chapin 263/35000 " 

A. M. McGregor 118/35000 " 

D. Brewster 409/35000 " 

W. C. Andrews 990/35000 " 

Horace A. Hutchins 11 1/35000 " 

John D. Archbold 350/35000 " 

John D. Rockefeller 8984/35000 " 

J. N. Camden 200/35000 " 

W. P. Thompson 132/35000 " 

D. M. Harkness 323/35000 " 

O. H. Payne 2637/35000 " 

John Huntington 584/35000 " 

W. T. Warden 78/35000 " 

H. W. Payne 292/35000 " 

and to divide and distribute the same as soon as they can conven- 
iently do so between the said persons for whose benefit they hold 
the same as aforesaid, and in the respective proportions aforesaid; 
with full power and authority to the survivors of the said trustees 
in case of the death of either of them to nominate and appoint a 
successor to such deceased trustee if they shall think it expedient 
so to do or else to continue the said trust without filling such 
vacancy. 

In witness whereof the Standard Oil Co. has, by its president 
and secretary, duly authorized thereto, set its name and affixed 



Representative Trusts 17 

its corporate seal, and the others of the undersigned have hereto 
set their hands and seals this eighth day of April, A. d. 1879. 

Standard Oil Company, 
By John D. Rockefeller, 

Prest. 
Attest: 
H. M. Flagler, Secy. 

(Here follows list of signatures.) 



Exhibit 2 

standard oil trust agreement and supplemental trust 
agreement op 1882 ^ 

This agreement, made and entered upon this second day of 
January, A. D. 1882, by and between all the persons who shall now 
or may hereafter execute the same as parties thereto, witnesseth: 

I. It is intended that the parties to this agreement shall embrace 
three classes, to wit: 

(i) All the stockholders and members of the following cor- 
porations and limited partnerships, to wit: 

Acme Oil Co. (New York), Acme Oil Co. (Pennsylvania), At- 
lantic Refining Co., of Phila.; Bush & Co. Limited, Camden Con- 
soHdated Oil Co., Elizabethport Acid Works, Imperial Refining 
Co., Limited, Chas. Pratt & Co., Paine, Ablett & Co., Limited, 
Standard Oil Co. (Ohio), Standard Oil Co. (Pittsburg), Smith's 
Ferry Oil Trans. Co., Solar Oil Co. Limited, Sone & Fleming Mfg. 
Co., Limited. 

Also all the stockholders and members of such other corporations 
and limited partnerships as may hereafter join in this agreement 
at the request of the trustees herein provided for. 

(2) The following individuals, to wit: 

W. C. Andrews, John D. Archbold, Lide K. Arter, J. A. Bostwick, 
Benj. Brewster, D. Bushnell, Thomas C. Bushnell, J. N. Camden, 
Henry L. Davis, H. M. Flagler, Mrs. H. M. Flagler, H. M. Hanna, 
and George W. Chapin, D. M. Harkness, D. M. Harkness, trustee; 
S. V. Harkness, John Huntington, H. A. Hutchins, Chas. F. G. 
Heye, O. B. Jennings, Chas. Lockhart, A. M. McGregor, Wm. H. 
Macy, Wm. H. Macy, jr., estate of Josiah Macy, jr., Wm. 

^ Appendix. Report of Industrial Commission, Vol. I, pp. 1221-26. 



1 8 Industrial Combinations and Trusts 

H. Macy, jr., executor; O. H. Payne, 0. H. Payne, trustee; 
Chas. Pratt, Horace A. Pratt, C. M. Pratt, A. J. Pouch, John D. 
Rockefeller, Wm. Rockefeller, Henry H. Rogers, W. P. Thompson, 
J. J. Vandergrift, Wm. T. Wardwell, W. G. Warden, Joseph L. 
Warden; Warden, Frew & Co., Louise C. Wheaton, Julia H. York, 
George H. Vilas, M. R. Keith, Geo. F. Chester, trustees. 

Also all such individuals as may hereafter join in this agreement 
at the request of the trustees herein provided for. 

(3) A portion of the stockholders and members of the following 
corporations and limited partnerships, to wit: 

American Lubricating Oil Co., Baltimore United Oil Co., Beacon 
Oil Co., Bush & Denslow Manuf'g Co., Central Refining Co., of 
Pittsburg; Cheseb rough Manuf'g Co., Chess-Carley Co., Con- 
soHdated Tank Line Co., Inland Oil Co., Keystone Refining Co., 
Maverick Oil Co., National Transit Co., Portland Kerosene Oil 
Co., Producers' Con'd Land and Petroleum Co., Signal Oil Works, 
Limited, Thompson and Bedford Co., Limited, Devoe Manuf'g 
Co., Eclipse Lubricating Oil Co., Limited, Empire Refining Co., 
Limited, Franklin Pipe Co., Limited, Galena Oil Works, Limited, 
Galena Farm Oil Co., Limited, Germania Mining Co., Vacuum 
Oil Co., H. C. Van Tine & Co., Limited, Waters-Pierce Oil Co. 

Also stockholders and members (not being all thereof) of other 
corporations and limited partnerships who may hereafter join in 
this agreem^ent at the request of the trustees herein provided for. 

11. The parties hereto do covenant and agree to and with each 
other, each in consideration of the mutual covenants and agree- 
ments of the others, as follows: 

(i) As soon as practicable a corporation shall be formed in each 
of the following States, under the laws thereof, to-wit: Ohio, New 
York, Pennsylvania and New Jersey; provided, however, that in- 
stead of organizing a new corporation, any existing charter and 
organization may be used for the purpose when it can advan- 
tageously be done. 

(2) The purposes and powers of said corporations shall be to 
mine for, produce, manufacture, refine, and deal in petroleum 
and all its products, and all the materials used in such business, 
and transact other business collateral thereto. But other purposes 
and powers shall be embraced in the several charters such as shall 
seem expedient to the parties procuring the charter, or, if necessary 
to comply with the law, the powers aforesaid may be restricted 
and reduced. 



Representative Trusts 19 

(3) At any time hereafter, when it may seem advisable to the 
trustees herein provided for, similar corporations may be formed 
in other States and Territories. 

(4) Each of said corporations shall be known as the Standard 

Oil Co. of (and here shall follow the name of the State 

or Territory by virtue of the laws of which said corporation is 
organized). 

(5) The capital stock of each of said corporations shall be fixed 
at such an amount as may seem necessary and advisable to the 
parties organizing the same, in view of the purpose to be accom- 
phshed. 

(6) The shares of stock of each of said corporations shall be 
issued only for money, property, or assets equal at a fair valuation 
to the par value of the stock delivered therefor. 

(7) AH of the property, real and personal, assets, and business 
of each and all of the corporations and limited partnerships men- 
tioned or embraced in class (i) shall be transferred to and vested 
in the said several Standard Oil companies. All of the property, 
assets, and business in or of each particular State shall be trans- 
ferred to and vested in the Standard Oil Co. of that particular 
State, and in order to accomplish such purpose the directors and 
managers of each and all of the several corporations and hmited 
partnerships mentioned in class first are hereby authorized and 
directed by the stockholders and members thereof (all of them be- 
ing parties to this agreement) to sell, assign, transfer, convey, and 
make over, for the consideration hereinafter mentioned, to the 
Standard Oil Co. or companies of the proper State or States, as 
soon as said corporations are organized and ready to receive the 
same, all the property, real and personal, assets, and business of 
said corporations and limited partnerships. Correct schedules of 
such property, assets, and business shall accompany each transfer. 

(8) The individuals embraced in class second of this agreement 
do each for himself agree, for the consideration hereinafter men- 
tioned, to sell, assign, transfer, convey, and set over all the property, 
real and personal, assets, and business mentioned and embraced 
in schedules accompanying such sale and transfer to the Standard 
Oil Company or Companies of the proper State or States, as soon 
as the said corporations are organized and ready to receive the 
same. 

(9) The parties embraced in class third of this agreement do 
covenant and agree to assign and transfer all of the stock held by 



20 Industrial Combinations and Trusts 

them in the corporations cr limited partnerships herein named, 
to the trustees herein provided for, for the consideration and upon 
the terms hereinafter set forth. It is understood and agreed that 
the said trustees and their successors may hereafter take the as- 
signment of stocks in the same or similar companies upon the terms 
herein provided, and that whenever and as often as all the stocks 
of any corporation and limited partnership are vested in said trust- 
ees the proper steps may then be taken to have all the money, 
property, real and personal, of said corporation or partnership 
assigned and conveyed to the Standard Oil Company of the proper 
State on the terms and in the mode herein set forth, in which event 
the trustees shall receive stocks of the Standard Oil Company equal 
to the value of the money, property, and business assigned, to be 
held in place of the stocks of the company or companies assigning 
such property. 

(lo) The consideration for the transfer and conveyance of the 
money, property, and business aforesaid to each or any of the 
Standard Oil Companies shall be stock of the respective Standard 
Oil Company to which said transfer or conveyance is made, equal 
at par value to the appraised value of the money, property, and 
business so transferred. Said stock shall be delivered to the trustees 
hereinafter provided for, and their successors, and no stock of any 
of said companies shall ever be issued except for money, property, 
or business equal at least to the par value of the stock so issued, 
nor shall any stock be issued by any of said companies for any 
purpose except to the trustees herein provided for, to be held sub- 
ject to the trusts hereinafter specified. It is understood, however, 
that this provision is not intended to restrict the purchase, sale, 
and exchange of property of said Standard Oil Companies as fully 
as they may be authorized to do by their respective charters, 
provided only that no stock be issued therefor except to said 
trustees. 

(ii) The consideration for any stock delivered to said trustees 
as above provided for, as well as for stocks delivered to said trustees 
by persons mentioned or included in class third of this agreement, 
shall be the delivery by said trustees, to the persons entitled thereto, 
of trust certificates hereinafter provided for, equal at par value 
to the par value of the stocks of the said Standard Oil companies 
so received by said trustees, and equal to the appraised value of the 
stocks of other companies or partnerships delivered to said trustees. 
(The said appraised value shall be determined in a manner agreed 



Representative Trusts 21 

upon by the parties in interest and said trustees.) It is under- 
stood and agreed, however, that the said trustees may, with any 
trust funds in their hands, in addition to the mode above provided, 
purchase the bonds and stocks of other companies engaged in 
business similar or collateral to the business of said Standard Oil 
companies, on such terms and in such mode as they may deem ad- 
visable, and shall hold the same for the benefit of the owners of 
said trust certificates, and may sell, assign, transfer, and pledge 
such bonds and stocks whenever they may deem it advantageous 
to said trust so to do. 

III. The trusts upon which said stocks shall be held, and the 
number, powers, and duties of said trustees, shall be as follows: 

(i) The number of trustees shall be nine. 

(2) J. D. Rockefeller, O. H. Payne, and Wm. Rockefeller are 
hereby appointed trustees, to hold their office until the first Wed- 
nesday of April, A. D. 1885. 

(3) J. A. Bostwick, H. M. Flagler, and W. G. Warden are hereby 
appointed trustees, to hold their office until the first Wednesday 
of April, A. D. 1884. 

(4) Chas. Pratt, Benj. Brewster, and John D. Archbold, are 
hereby appointed trustees, to hold their office until the first Wed- 
nesday of April, A. D. 1883. 

(5) Elections for trustees to succeed those herein appointed shall 
be held annually, at which election a sufficient number of trustees 
shall be elected to fill all vacancies occurring either from expiration 
of the term of office of trustee or from any other cause. All trustees 
shall be elected to hold their office for three years, except those 
elected to fill a vacancy arising from any cause except expiration 
of term, who shall be elected for the balance of the term of the 
trustee whose place they are elected to fill. Every trustee shall 
hold his office until his successor is elected. 

(6) Trustees shall be elected by ballot by the owners of trust 
certificates or their proxies. At all meetings the owners of trust 
certificates who may be registered as such on the books of the 
trustees may vote in person or by proxy, and shall have one vote 
for each and every share of trust certificates standing in their 
names; but no such owner shall be entitled to vote upon any share 
which has not stood in his name thirty days prior to the day ap- 
pointed for the election. The transfer books may be closed for 
thirty days immediately preceding the annual election. A major- 
ity of the shares represented at such election shall elect. 



22 Industrial Combinations and Trusts 

(7) The annual meeting of the owners of said trust certificates 
for the election of trustees and for other business shall be held at 
the ofiQce of the trustees in the city of New York on the first Wed- 
nesday of April of each year, unless the place of meeting be changed 
by the trustees, and said meeting may be adjourned from day to 
day until its business is completed. Special meetings of the owners 
of said trust certificates may be called by the majority of the 
trustees at such times and places as they may appoint. It shall also 
be the duty of the trustees to call a special meeting of holders of 
trust certificates whenever requested to do so by a petition signed 
by the holders of 10 per cent in value of such certificates. The 
business of such special meetings shall be confined to the object 
specified in the notice given therefor. Notice of the time and place 
of all meetings of the owners of trust certificates shall be given by 
personal notice as far as possible and by public notice in one of 
the principal newspapers in each State in which a Standard Oil 
Co. exists at least ten days before such meeting. At any meeting, 
a majority in the value of the holders of trust certificates represented 
consenting thereto, by-law^s may be made, amended, or repealed 
relative to the mode of election of trustees and other business 
of the holders of trust certificates ; provided, howxver, that said by- 
laws shall be in conformity with this agreement. By-laws may also 
be made, amended, and repealed at any meeting, by and with 
the consent of a majority in value of the holders"of trust certificates, 
which alter this agreement relative to the number, powers, and 
duties of the trustees and to other matters tending to the more effi- 
cient accomplishment of the objects for which the trust is created, 
provided only that the essential intents and purposes of this agree- 
ment be not thereby changed. 

(8) Whenever a vacancy occurs in the board of trustees more 
than sixty days prior to the annual meeting for the election of 
trustees, it shall be the duty of the remaining trustees to call a 
meeting of the o-^mers of the Standard Oil Trust certificates for the 
purpose of electing a trustee or trustees to fill the vacancy or vacan- 
cies. If any vacancy occurs in the board of trustees, from any 
cause, within sixty days of the date of the annual meeting for the 
election of trustees, the vacancy may be filled by a majority of the 
remaining trustees, or, at their option, may remain vacant until 
the annual election. 

(9) If, for any reason, at any time, a trustee or trustees shall be 
appointed by any court to fill any vacancy or vacancies in said 



Representative Trusts 23 

board of trustees, the trustee or trustees so appointed shall hold 
his or the respective office or offices only until a successor or succes- 
sors shall be elected in the manner above provided for. 

(10) Whenever any change shall occur in the board of trustees, 
the legal title to the stock and other property held in trust shall 
pass to and vest in the successors of said trustees without any formal 
transfer thereof; but if at any time such formal transfer shall be 
deemed necessary or advisable it shall be the duty of the board 
of trustees to obtain the same, and it shall be the duty of any re- 
tiring trustee, or the administrator or executor of any deceased 
trustee, to make said transfer. 

(11) The trustees shall prepare certificates, which shall show the 
interest of each beneficiary in said trust, and deliver them to the 
persons properly entitled thereto. They shall be divided into shares 
of the par value of $100 each, and shall be known as " Standard Oil 
Trust certificates," and shall be issued subject to all the terms and 
conditions of this agreement. The trustees shall have power to 
agree upon and direct the form and contents of said certificates, 
and the mode in which they shall be signed, attested, and trans- 
ferred. The certificates shall contain an express stipulation that 
the holders thereof shall be bound by the terms of this agreement, 
and by the by-laws herein provided for. 

(12) No certificates shall be issued except for stocks and bonds 
held in trust, as herein provided for, and the par value of certificates 
issued by said trustees shall be equal to the par value of the stocks 
of said Standard Oil Companies, and the appraised value of other 
bonds and stocks held in trust. The various bonds, stocks, and 
moneys held under said trust shall be held for all parties in interest 
jointly, and the trust certificates so issued shall be the evidence 
of the interest held by the several parties in this trust. No dupli- 
cate certificates shall be issued by the trustees except upon sur- 
render of the original certificate or certificates for cancellation, 
or upon satisfactory proof of the loss thereof, and in the latter case 
they shall require a sufficient bond of indemnity. 

(13) The stocks of the various Standard Oil Companies held 
in trust by said trustees shall not be sold, assigned, or transferred 
by said trustees, or by the beneficiaries, or by both combined, 
so long as the trust endures. The stocks and bonds of other cor- 
porations held by said trustees may be by them exchanged or sold 
and the proceeds thereof distributed pro rata to the holders of 
trust certificates, or said proceeds may be held and reinvested 



24 Industrial Combinations and Trusts 

by said trustees for the purposes and uses of the trust; provided, 
however, that said trustees may from time to time assign such 
shares of stock of said Standard Oil Companies as may be necessary 
to quahfy any person or persons chosen or to be chosen as directors 
and officers of any of said Standard Oil Companies. 

(14) It shall be the duty of said trustees to receive and safely 
to keep all interest and dividends declared and paid upon any of the 
said bonds, stocks, and moneys held by them in trust, and to dis- 
tribute all moneys received from such sources or from sales of trust 
property or otherwise by declaring and paying dividends upon the 
Standard Trust certificates as funds accumulate, which in their 
judgment are not needed for the uses and expenses of said trust. 
The trustees shall, however, keep separate accounts and receipts 
from interest and dividends, and of receipts from sales or transfers 
of trust property, and in making any distribution of trust funds, 
in which moneys derived from sales or transfers shall be included, 
shall render the holders of trust certificates a statement showing 
what amount of the fund distributed has been derived from such 
sales or transfers. The said trustees may be also authorized and 
empowered by a vote of a majority in value of holders of trust 
certificates, whenever stocks or bonds have accumulated in their 
hands from money purchases thereof, or the stocks or bonds held 
by them have increased in value, or stock dividends shall have been 
declared by any of the companies whose stocks are held by said 
trustees, or whenever from any such cause it is deemed advisable 
so to do, to increase the amount of trust certificates to the extent 
of such increase or accumulation of values and to divide the same 
among the persons then owning trust certificates pro rata. 

(15) It shall be the duty of said trustees to exercise general 
supervision over the affairs of said several Standard Oil Companies, 
and as far as practicable over the other companies or partnerships, 
any portion of whose stock is held in said trust. It shall be their 
duty as stockholders of said companies to elect as directors and 
officers thereof faithful and competent men. They may elect them- 
selves to such positions when they see fit so to do, and shall en- 
deavor to have the affairs of said companies managed and directed 
in the manner they may deem most conducive to the best interests 
of the holders of said trust certificates. 

(16) All the powers of the trustees may be exercised by a major- 
ity of their number. They may appoint from their own number an 
executive and other committees. A majority of each committee 



Representative Trusts 25 

shall exercise all the powers which the trustees may confer upon such 
committee. 

(17) The trustees may employ and pay all such agents and at- 
torneys as they may deem necessary in the management of said 
trust. 

(18) Each trustee shall be entitled to a salary for his services 
not exceeding twenty-five thousand dollars per annum, except the 
president of the board, who may be voted a salary not exceeding 
thirty thousand dollars per annum, which salaries shall be fixed 
by said board of trustees. All salaries and expenses connected with 
or growing out of the trust shall be paid by the trustees from the 
trust fund. 

(19) The board of trustees shall have its principal ofiice in the 
city of New York, unless changed by vote of the trustees, at which 
ofiice, or in some place of safe deposit in said city, the bonds and 
stocks shall be kept. The trustees shall have power to adopt rules 
and regulations pertaining to the meetings of the board, the election 
of ofiicers, and the management of the trust. 

(20) The trustees shall render at each annual meeting a state- 
ment of the affairs of the trust. If a termination of the trust be 
agreed upon, as hereinafter provided, or within a reasonable time 
prior to its termination by lapse of time, the trustees shall furnish 
to the holders of the trust certificates a true and perfect inventory 
and appraisement of all stocks and other property held in trust, 
and a statement of the financial affairs of the various companies 
whose stocks are held in trust. 

(21) The trust shall continue during the lives of the survivors 
and survivor of the trustees in this agreement named, and for 
twenty-one years thereafter; provided, however, that if at any time 
after the expiration of ten years two-thirds of all the holders in 
value, or if after the expiration of one year 90 per cent of all the 
holders in value of trust certificates shall, at a meeting of holders 
of trust certificates called for that purpose, vote to terminate this 
trust at some time to be by them then and there fixed, the said 
trust shall terminate at the date so fixed. If the holders of trust 
certificates shall vote to terminate the trust as aforesaid, they may, 
at the same meeting, or at a subsequent meeting called for that 
purpose, decide by vote of two-thirds in value of their number the 
mode in which the affairs of the trust shall be wound up, and 
whether the trust property shall be distributed or whether part, 
and if so, what part shall be divided and what part sold, and whether 



26 Industrial Combinations and Trusts 

such sales shall be public or private. The trustees, who shall con- 
tinue to hold their offices for that purpose, shall make the dis- 
tribution in the mode directed, or, if no mode be agreed upon, by 
two-thirds in value as aforesaid, the trustees shall make distribution 
of the trust property according to law. But said distribution, 
however made, and whether it be of property, or values, or of both, 
shall be just and equitable, and such as to insure to each owner of 
a trust certificate his due proportion of the trust property or the 
value thereof. 

(22) If the trust shall be terminated by the expiration of the 
time for which it is created, the distribution of the trust property 
shall be directed and made in the mode above provided. 

(23) This agreement, together with the registry of certificates, 
books of accounts, and other books and papers connected with the 
business of said trust, shall be safely kept at the principal office of 
said trustees. 

(Signatures.) 

SUPPLEMENTAL AGREEMENT 

Whereas in and by an agreement dated January 2, 1882, and 
known as the Standard Trust agreement, the parties thereto did 
mutually covenant and agree, inter alia, as follows, to wit: That 
corporations to be known as Standard Oil Companies of various 
States should be formed, and that all of the property, real and per- 
sonal, assets, and business of each and all of the corporations and 
limited partnerships mentioned or embraced in class first of said 
agreement should be transferred and vested in the said several 
Standard Oil Companies; that all of the property, assets, and busi- 
ness in or of each particular State should be transferred to and 
vested in the Standard Oil Company of that particular State, and 
the directors and managers of each and all of the several corpora- 
tions and associations mentioned in class first were authorized 
and directed to sell, assign, transfer, and convey, and make over 
to the Standard Oil Company or Companies of the proper State 
or States, as soon as said corporations were organized and ready 
to receive the same, all the property, real and personal, assets and 
business of said corporations or associations; and whereas it is not 
deemed expedient that all of the companies and associations 
mentioned should transfer their property to the said Standard 
Oil Companies at the present time, and in case of some companies 
and associations it may never be deemed expedient that the said 



Representative Trusts 27 

transfer should be made, and said companies and associations 
go out of existence; and whereas it is deemed advisable that a dis- 
cretionary power should be vested in the trustees as to when such 
transfer or transfers should take place, if at all : Now, it is hereby 
mutually agreed between the parties to the said trust agreement, 
and as supplementary thereto, that the trustees named in the 
said agreement and their successors shall have the power and 
authority to decide what companies shall convey their property 
as in said agreement contemplated, and when the said sales and 
transfers shall take place, if at all, and until said trustees shall so 
decide, each of said companies shall remain in existence, and retain 
its property and business, and the trustees shall hold the stocks 
thereof in trust, as in said agreement provided. In the exercise 
of said discretion the trustees shall act by a majority of their num- 
ber as provided in said trust agreement. All portions of said trust 
agreement relating to this subject shall be considered so changed 
as to be in harmony with this supplemental agreement. 

In witness whereof, the said parties have subscribed this agree- 
ment this 4th day of January, 1882. 

(Duly signed by the same parties.) 

Exhibit 3 

DEED 



The undersigned, namely: 

Havemeyers & Elder, The DcCastro 2 and Donner Sugar Re- 
fining Company, F. O. Matthiessen & Wiechers' Sugar Refining 
Company, Havemeyer Sugar Refining Company, Brooklyn Sugar 
Refining Company, the firm of Dick & Meyer, the firm of MoUer, 
Sierck & Company, North River Sugar Refining Company, the 
firm of Oxnard Brothers, the Standard Sugar Refinery, the Bay 
State Sugar Refinery, the Boston Sugar Refining Company, the 
Continental Sugar Refinery and the Revere Sugar Refinery, for 
the purpose of forming the board hereinafter provided for and for 
other purposes hereinafter set forth, enter into the following agree- 
ment: 

^ Report of the Senate Committee on General Laws on Investigation Relative 
to Trusts. N. Y. Sen. Doc. No. 50, 1888, pp. 644-651. 
2 Thus in original. — Ed. 



28 Industrial Combinations and Trusts 



Name 

The board herein provided for shall be designated by the name 
of The Sugar Refineries Company. 

Objects 

The objects of this agreement are: 

1. To promote economy of administration and to reduce the 
cost of refining, thus enabling the price of sugar to be kept as low 
as is consistent with a reasonable profit. 

2. To give to each refinery the benefit of all appHances and proc- 
esses known or used by the others, and useful to improve the 
quality and diminish the cost of refined sugar. 

3. To furnish protection against unlawful combinations of labor. 

4. To protect against inducements to lower the standard of 
refined sugar. 

5. Generally to promote the interests of the parties hereto in 
all lawful and suitable ways. 

Board 

The parties hereto who are not corporations shall become such 
before this deed takes effect. 

Each corporation subscribing hereto agrees and the parties hereto 
who are not corporations agree as to the corporations which they 
are to form, that all the shares of the capital stock of all such cor- 
porations shall be transferred to a board consisting of eleven per- 
sons, which may be increased to thirteen by vote of the majority 
of the members of the entire board, the two additional members to 
belong respectively to the first and second classes hereinafter pro- 
vided for. 

Any member of the board may be removed by vote of two- 
thirds of the members of the entire board, in case of incapacity or 
neglect, or refusal to serve. 

Any member may resign by filing written notice of his resig- 
nation with the secretary of said board. 

Vacancies during the term of office of members shall be filled 
by appointment, by vote of the majority of the members of the 
entire board. 

A member appointed to fill a vacancy shall hold office until 
the expiration of the term of the member in whose place he is 



Representative Trusts 29 

appointed, which new appointee shall succeed to all the rights, 
duties and obligations of his predecessor under this deed. 

Vacancies by expiration of office shall be filled at the annual 
meeting of the holders of certificates herein provided for, or at such 
other times as shall be prescribed by the board. 

Such annual meetings shall be held in the city of New York 
in the month of June, and notice shall be given to each certificate 
holder of record, of every meeting of certificate holders, by mailing 
to him at least seven days before said meeting, a notice of the time, 
place and objects of such meeting. Holders of certificates shall 
vote according to the number of shares for which they hold certif- 
icates. They may vote by proxy. 

The board may make by-laws. All arrangements for meetings, 
elections, and all details not herein specifically provided for, shall 
be made by the board. A member of the board may act by proxy 
for any other member with like effect as if he were present and act- 
ing. 

A majority of the members of the board shall constitute a quorum 
for the transaction of business. The action of a board meeting, 
by a majority vote of such meeting, shall have the same effect as 
the unanimous action of the board, except as herein otherwise 
provided, and that to authorize the appropriation of money, bonds 
or shares, shall require the assent either written or expressed by vote 
at a board meeting, of at least a majority of the members of the 
entire board. 

No member of the board shall, during the time that he holds 
office, buy or sell sugar, or be interested directly or indirectly in 
the purchase or sale of sugar, whether for the purpose of speculation 
or otherwise, without a vote of a majority of the members of the 
entire board. For any violation of this provision, he may be re- 
moved as a member of the board and shall be liable to account 
for profits which shall be realized by him to the board for the pro 
rata benefit of the certificate holders. 

As it is desirable that the board shall consist of members who 
are largely interested in the properties and the business contem- 
plated it is hereby agreed that oil ^ members of the board shall be 
free to join in or become parties to agreements and transactions 
which the several boards of directors, hereinafter referred to, or 
this board, may arrange, to the same extent and in the same manner, 
and with the like effect, as if they were not members of the board. 
^ Thus in the original. — Ed. 



30 Industrial Combinations and Trusts 

The said board may transfer, from time to time, to such persons 
as it may be desired to constitute trustees or directors or other 
ofl&cers of corporations, so many of the shares as may be necessary 
for that purpose, to be held by them subject to the provisions of 
this instrument, such transfers may be executed by the president 
and treasurer of the board, in behalf of and as attorneys of the board, 
for that purpose and to be retransferred when so requested by the 
board. 

The first board shall consist of the persons hereinafter mentioned. 
They shall hold ofl&ce as follows, and until their successors shall be 
elected: 

Members of the First Class. 

Harry 0. Havemeyer, F. O. Matthiessen, John E. Searles, Jr., 
JuKus A. Stursberg, to hold office seven years. 

Members of the Second Class. 
Theodore A. Havemeyer, Joseph B. Thomas, John Jurgensen; 
Hector C. Havemeyer withdrew and Mr. Parsons substituted, to 
hold office five years. 

Members of the Third Class. 

Charles H. Senff, William Dick, to hold office three years. 

At the expiration of the terms of the third class, and of each 
successive class, their successors, as members of such class, shall 
be elected for seven years. 

Officers. 

The board shall appoint from its members a president, vice- 
president and treasurer, and it shall also appoint a secretary, who 
may or may not be a member of the board. The board may, from 
time to time, create other offices and appoint the persons to fill 
them. It may appoint committees. It shall designate the duties 
and prescribe the powers of the several officers and committees. 

Plan. 

The several corporations, parties to this agreement shall main- 
tain their separate organization, and each shall carry on and con- 
duct its own business. 

The capital stock of each corporation shall be transferred to the 
board, and in heu of the same, certificates not exceeding fifty mil- 
lions of dollars, divided into five hundred thousand shares, each of 



Representative Trusts 31 

one hundred dollars, shall be issued by the board and distributed 
as hereinafter provided. 
The certificate shall be in the following form: 

No Shares. 

Shares One Hundred Dollars Each. 
The Sugar Refineries Company. 

This is to certify that is entitled to 

shares of the Sugar Refineries Company. 

This certificate is issued under and subject to the provisions of a 
deed dated the sixteenth day of August, one thousand eight hun- 
dred and eighty-seven. 

The shares represented by this certificate are transferable by 
the holder and his personal representatives in person or by attorney, 
upon the books of the board, and not otherwise, and only upon the 
surrender of this certificate. 

They entitle the holder to the rights and are subject to the pro- 
visions mentioned in the deed. 

The interest of the holder is in the proportion of the number 
of shares represented by this certificate to the entire number of 
shares outstanding. The total amount represented by outstanding 
certificates, and the terms of the deed may be changed from time 
to time by a majority in interest as therein provided. 

In witness whereof the board has caused this certificate to be 
signed by its president and treasurer, and the seal of 

[l. s.] the board to be affixed hereto, the day of , one 

thousand eight hundred and eighty 

For value received do hereby assign, transfer 

and set over unto shares of those represented by 

the within certificate, and do hereby constitute 

and appoint attorney, irrevocable, for 

and in name and stead, to transfer the said shares 

upon the books kept for the purpose under the direction of the 
within board. 

The assignee by accepting this transfer assents to the terms of 
the deed referred to in the certificate as the same shall be changed 
from time to time. 

Witness hand and seal this day of , 

one thousand eight hundred and eighty. 



12 Industrial Combinations and Trusts 



Title. 

The shares of the capital stock of the several corporations to be 
transferred to the board as herein provided shall be transferred to 
the names of the members of the board as trustees, to be held by 
them and by their successors as members of the board strictly as 
joint tenants. 

By the death, resignation or removal of any member of the board 
the whole title shall remain in the others. All members ceasing 
to be such shall execute such instrumxcnts as may be necessary, if 
any, to keep the title vested in the persons who from time to time 
shall be members of the board. 

The Board shall hold the stock transferred to it with all the rights 
and powers incident to stockholders in the several corporations 
and subject only to the purposes set forth in this deed. 

Division of Interest. 

The several corporations shall be entitled to the shares in the 
following proportions of the fifty millions of dollars, viz.: 

Havemeyer & Elder. 

DeCastro & Donner Sugar Refining Company. 

F. O. Matthiessen & Weichers Sugar Refining Company. 

The Havemeyer Sugar Refining Company. 

The Brooklyn Sugar Refining Company. 

Dick & Meyer. 

Moller, Sierck & Company. 

Oxnard Brothers. 

North River Sugar Refining Company. 

Standard Sugar Refinery. 

Boston Sugar Refining Company. 

Bay State Sugar Refinery. 

Continental Sugar Refinery. 

Revere Sugar Refinery. 

Each refinery and the corporation to which it belongs shall be 
freed from liability and indebtedness by the parties interested in 
it; or such parties, if the board shall approve, may provide in cash 
for such indebtedness or liability, leaving the same to stand at the 
pleasure of the board; except that the employe's contracts shown 
in the schedules hereto annexed, and the contracts with Havemeyer 
and Elder, the F. 0. Matthiessen and Weichers Sugar Refining 



Representative Trusts 33 

Company and the Bay State Sugar Refinery pending for improve- 
ments and enlargements, shall continue as liabilities. 

Annexed hereto are schedules in general terms of the properties 
of the several refineries. The properties are guaranteed to cor- 
respond with the schedules by the parties interested therein, who 
are to make good any deficiency. On the complete execution of 
this agreement each of the said parties shall make a full inventory 
of the property not embraced in such schedules and useful for the 
conduct of the business, on hand or contracted for, including raw 
and refined sugars, molasses, sugars in process, syrups, bone black, 
fuel barrels, packages, charcoal and other supplies, and such in- 
ventory is to be examined and the articles appraised at their present 
cash value (except as to sugar and molasses to arrive which are 
to be appraised at their market value on arrival) by a committee 
of five persons as follows: 

Theodore A. Havemeyer, F. O. Matthiessen, Julius A. Sturs- 
berg, John E. Searles, Jr., and Joseph B. Thomas. 

The value of such property as fixed by four-fifths of the ap- 
praisers shall be paid for in cash by the said board to the treasurer 
of each corporation. 

Bone black may at the option of the board be paid for in cash or 
in the bonds hereinafter provided for, or in certificates at a rate 
for bonds or certificates to be fixed by a vote of a majority of the 
members of the entire board. 

The property shall remain with the refinery where it is, to be 
used by it, except as such refinery shall make a different disposition 
of it. 

In consideration of the transfers of their stock to the board the 

said board shall also pay to Havemeyers & Elder the sum of 

.to the F. O. Matthiessen & Weichers Sugar 

Refining Company, the sum of and to the 

Bay State Sugar Refining Company the sum of on 

account of payments already made on pending contracts for im- 
provements and enlargements. 

Additional shares to the amount of $400,000, less fifteen per 
cent, to be left with the board as hereinafter provided, shall be re- 
ceived by Moller, Sierck & Co., for improvements and enlargements 
of capacity of their refinery now in progress, when said improve- 
ments are completed, and the increased capacity demonstrated. 

The shares assigned to the several refineries shall be distributed 
by them to and among the parties interested therein. 



34 INDUSTRLA.L COMBINATIOXS AND TRUSTS 

Each holder of stock in a refinery company shall be entitled to so 
many of the shares allotted to such refiinery as shall be in proportion 
of his stock to the capital of his company. 

Shares for stockholders of any refinery company who shall not 
surrender their stock, may, under the direction of the board, be 
deposited for their account with the right to receive the same upon 
the surrender of their stock. 

Of the shares allotted to the several refineries they shall leave 
fifteen per cent with the board, and those shares and any shares 
not allotted of the fifty milhons of dollars, except as herein other- 
wise pro\dded, shall be subject to be disposed of by the board, either 
for the acquisition of other refineries to become parties to this deed, 
payment for additional capacity, or by appropriations to the several 
refineries. 

But in no case shall any appropriation be made to or any action 
be taken by any corporation without the approval of its board of 
directors, and no action shall be taken by the board which shall 
create HabiHty by it or by its members. 

Profits. 

The profits arising from the business of each corporation shall 
be paid over by it to the board hereby created, and the aggregate 
of said profits, or such amount as may be designated for di\'idend3 
shall be proportionately distributed by said board, at such times 
as it may determine, to the holders of the certificates issued by said 
board for capital stock as hereinbefore pro\'ided. 

Fiscal Arr-Axgeaiexts. 

The funds necessar}^ to enable the said board to make the pay- 
ments herein pro\*ided to be made by it, may be raised by mortgage 
to be made by the corporations or either, any or aU of them on 
their property, and by such other means as shall be satisfactory 
to such board. 

In case any mortgage shall be laid on the property of any cor- 
poration by its directors or stockholders the holders of certificates 
shall, -^-vithin a time to be fixed by said board, have the right at 
such uniform rates as said board shall arrange, to have the bonds, 
certificates or other e\^dence of debts or interest in proportion to 
their respective holdings. Any parts which shall not be thus taken 
may be disposed of by said board. 



Representative Trusts 35 



Changes. 

The number of shares and the total amount thereof, issuable 
by said board, may, from time to time, be increased or diminished 
by deed executed by a majority in, value of the certificate holders. 

The provisions of this deed may from time to time be changed 
by deed executed by not less than a majority in interest of the 
certificate holders, provided no change shall be made which shall 
discriminate to the disadvantage of the certificate holders as be- 
tween themselves. 

Acquisition of Other Refineries. 

The capital stock of other sugar refining companies and of com- 
panies whose business relates directly or indirectly to sugar re- 
fining (in every instance to be incorporated) may be transferred 
to said board with the consent of a majority thereof at valuations 
and upon terms satisfactory to it to be held by said board under 
and subject to all the terms of this deed, and certificates may be 
issued therefor by said board and may be sold by it to provide funds 
for such purchase or purchases, and any such corporation or cor- 
porations shall thereupon become a party to this deed upon caus- 
ing the same to be duly signed in its behalf. 

Custody of Deed. 

This deed, when executed by the parties hereto, shall be delivered 
to the president of the board, who shall have the sole and independ- 
ent custody and control of the same, and the said deed shall not 
be shown or delivered to any person or persons whatsoever except 
by the express direction and order of the board. 

A copy of the said deed shall be lodged with a member of the 
board residing in Boston, Massachusetts, which shall be held by 
him under the same conditions and in the same manner as the 
original deed. 

In witness whereof the parties have hereto set their seals 
and affixed their names, these presents to become bind- 
ing when completely executed by all the parties, and to 
take effect from October ist, 1887. 
Dated August i6th, 1887, 
(Signatures.) 



36 Industrial Combinations and Trusts 



Exhibit 4 
distillers' and cattle feeders' trust ^ 

Whereas it is designed to form a trust to be known as the Dis- 
tillers and Cattle Feeders' Trust, for the purpose of securing in- 
telligent co-operation in the business of distilling spirits from grain 
or other material, malting, and the feeding of live-stock, and the 
sale of the products thereof in home and foreign markets, and to do 
ah other business incidental to those enumerated: Therefore, 

It is mutually agreed by all who may sign this agreement, or 
become at any time the holders of the certificates of trust herein 
provided for, as follows: 

First. The trust herein created shall be vested in nine trustees. 

Second. William N. Hobart, George K. Duckworth, Lewis H. 
Green, Peter J. Hennessy, Alfred Bevis, Joseph B. Greenhut, 
Warren H. Corning, Adolph Woolner, and John H. Francis are 
hereby appointed trustees, to hold their office until the ist day of 
May, a. d. 1888, or until their successors are elected and qualified. 

Third. The trustees shall prepare certificates which shall show 
the interest of each beneficiary in said trust, and deliver them to 
the persons entitled thereto. The certificates shall be divided into 
shares of the par value of $100 dollars ^ each, and shall be known 
as "The Distillers and Cattle Feeders' Trust Certificates." The 
trustees shall have full power to agree upon and direct the form 
and contents of said certificates and the m^ode in which they shall 
be executed, attested, and transferred. The certificates shall con- 
tain an express stipulation that the holders thereof shall be bound 
by the terms of this agreement and by the by-laws herein provided 
for. 

Fourth. No certificates shall be issued except for stock, as here- 
inafter provided, and the par value of the certificates issued shall 
represent as nearly as possible the actual cash value of the stock 
held by the trustees in trust. The certificates shall be the best 
evidence of the amount of interest of the beneficiaries in the trust. 
No duplicate shall be issued by the trustees except upon surrender 
of the original certificate and cancellation of the same, or upon 
satisfactory proof of the loss thereof, and the giving of a satis- 
factory bond of indemnity. 

^ House Report, No. 4165, 50th Congress, 2nd Sess., pp. 57-61. 
2 Thus in original. — Ed. 



Representative Trusts 37 

Fifth. Each subscriber hereto agrees to assign and transfer 
absolutely to said trustees the number of shares of capital stock 
of the particular corporation or corporations indicated in article 
six of this agreement, in consideration of which said trustees do 
hereby agree to execute and deliver to each subscriber trust certif- 
icates, as above specified, for the number of shares, which certifi- 
cates, at the par value thereof, shall represent the cash value of 
the stock so delivered. The value of the capital of any corporation 
whose stock shall be assigned to said trustees shall be first 
agreed upon between said trustees and the stockholders will- 
ing to transfer the same, and after it is agreed upon there 
shall be no discrimination in the purchase price as between 
stockholders of the same corporation transferring their shares at 
the same time. 

Sixth. This agreement shall take effect as soon as those holding 
a majority of stock in the following corporations, formed or to be 
formed, to wit: The Storrs Distilling Company by the Mill Creek 
Distilling Company; The Maddux Hobart Company by Maddux, 
Hobart & Co.; the White Mills Distilling Company by George K. 
Duckworth; the Great Western Distilling Company; Monarch 
Distilling Company; Woolner Brothers' Distilling Company; 
Peoria Distilling Company; Birmingham Distilling Company by 
Chicago Distilling Company; Missouri Distilling Company by 
Mound City Distilling Company, have transferred the same to 
said trustees. Thereafter the said trustees and their successors 
shall have power to purchase other stocks of the same companies 
or of companies organized for conducting the same business, or 
any of the businesses hereinbefore specified, and may issue there- 
for certificates of trust equal at par value to the cash value of the 
stocks so purchased, or shall have power to lease the premises of 
such companies, paying therefor such rental as they may deem 
proper, whenever, in their judgment, it is for the best interests of 
the trust to lease rather than purchase. 

Seventh. All stocks sold and transferred to said trustees shall 
be held by them and their successors for the benefit of all the own- 
ers of said trust certificates. No stocks so held by said trustees 
shall be sold or surrendered by said trustees, during the contin- 
uance of this trust, without the consent of a majority, in number 
and value, of the holders of trust certificates: Provided, however, 
That said trustees may from time to time assign such shares of 
stock as may be necessary to qualify any person or persons chosen 



38 Industrial Combinations and Trusts 

or desired to be chosen as directors of any companies, the stocks of 
which are held by said trustees. 

Eighth. That said trustees shall have power to cause corpora- 
tions to be formed for the purposes and with all or any of the powers 
specified in section i of this agreement: Provided, That the stock 
of such corporations shall be issued for cash or for property at its 
cash value, and shall be issued to or be purchased by said trustees 
in the manner provided in section 6 of this agreement. 

Ninth. Said trustees shall receive and safely keep all moneys 
received from dividends or interest upon stocks or moneys held in 
trust, and shall distribute the same, as well as all moneys received 
from sales of trust property, by declaring and paying monthly 
dividends upon said trust certificates as funds accumulate which 
are not needed for the uses and expenses of the Trust. The trustees 
shall, however, keep separate accounts of receipts from dividends 
and interest, and of receipts from sales of trust property, and in 
declaring any dividend in which moneys derived from sales of trust 
property are included shall render the holders of trust certificates 
a statement shomng what amount of the fund distributed was de- 
rived from such sales or transfers. 

Tenth. The trustees shall render to the holders of trust certif- 
icates at each annual meeting a statement of the receipts and dis- 
bursements of the trust for the year. They shall, also, whenever 
demanded by a majority in value of the holders of trust certificates, 
furnish a true and perfect inventory and appraisement of all 
property held in trust, and a statement as full as possible of the 
financial affairs of the various companies whose stocks are held in 
trust. 

Eleventh. Said trustees shall exercise supervision, so far as their 
ownership of stocks enables them to do, over the several corpora- 
tions or associations whose stock is held by said trustees. As 
stockholders of said corporations they shall elect, or endeavor to 
elect, honest and competent men as directors and officers thereof, 
who shall be paid a reasonable compensation for their services. 
They may elect themselves as such directors and officers, and shall 
endeavor to secure such judicious and efficient management of 
such corporations as shall be most conducive of the interests of the 
holders of trust certificates. 

Twelfth. None of the powers of the trustees can be exercised 
except by unanimous vote of their full number either in person 
or by proxy, except in the election of officers as provided in the 



Representative Trusts 39 

by-laws: Provided, That no proxy to represent a trustee can be 
given to or be voted by any person other than a trustee; and in case 
of a disagreement among the trustees upon any matter, a major- 
ity of such trustees may call a special meeting of the holders of 
certificates, as herein provided for, to whom shall be submitted the 
matter of disagreement, and a decision of a majority in value of the 
holders of trust certificates present in person or by proxy, shall be 
final, or such matter of disagreement may be submitted at any regu- 
lar meeting. The whole or any part of the foregoing provision 
of this article may be modified by any by-law now or hereafter 
adopted by the certificate holders. The said trustees may appoint 
from their own number an executive committee, and may appoint 
other committees composed wholly or partly of persons not of the 
board of trustees, and delegate to such committees such of their 
powers as they may deem advisable. A majority of each committee 
may exercise all the powers conferred upon such committee. 

Thirteenth. The trustees may employ and pay all such agents 
and attorneys as they may find it necessary to employ in the man- 
agement of said trust. 

Fourteenth. Each trustee shall be entitled to a salary for his 
services of $10 per day: Provided, however, That such salary may 
be increased by a majority of the certificate holders at any regu- 
lar or special meeting. All salaries and expenses connected with, 
and growing out of, the execution of the trust, shall be paid by the 
trustees from the trust fund. 

Fifteenth. The board of trustees shall have its principal oflSce 
in the city of Chicago, subject to change by a vote of the trustees, 
at which ofiice, or in a place of safe deposit adjacent thereto, the 
stocks held in trust shall be kept. 

Sixteenth. All powers and duties vested in the trustees herein 
named shall vest in, and be exercised by, the successors of said 
trustees, appointed as herein prescribed. 

Seventeenth. Elections for trustees to succeed those herein ap- 
pointed shall be held annually. At the first annual election three 
trustees shall be elected to hold their office for one year, three to 
hold their office for two years, and three to hold their ofiice for 
three years; thereafter three trustees shall be elected annually 
to take the place of those retiring, to hold their ofiice for three years, 
except those elected to fill a vacancy arising from any cause except 
expiration of term, who shall be elected for the balance of the 
term of the trustees whose place they are elected to fill. Every 



40 Industrial Combinations and Trusts 

trustee shall hold his office until his successor is elected and 
quahfied. 

Eighteenth. No person shall be eligible to the office of trustee 
unless he shall at the time of his election be the actual owner of at 
least five hundred shares of trust certificates, which shall stand in 
his name on the books of the trust, and which certificates, or an 
amount of not less than five hundred shares, he shall continue to 
be the actual owner of during his term of service, and the owner- 
ship shown as above provided. 

Nineteenth. Trustees shall be elected by ballot by the owners 
of trust certificates or their proxies. At all meetings the owners 
of trust certificates who shall be registered as such on the books 
of the trustees may vote in person or by proxy, and shall have one 
vote for each and every share of trust certificates standing in their 
names; but no such owner shall be entitled to vote upon any share 
which has not stood in his name thirty days prior to the day ap- 
pointed for the election. The transfer books shall be closed for 
thirty days immediately preceding the annual election. A major- 
ity of the shares represented at such elections shall elect. 

Twentieth. The annual meeting of the owners of said trust 
certificates, for the election of trustees and for other business, shall 
be held at the office of the trustees on the Wednesday nearest the 
15th day of April, of each year, and said meetings may be adjourned 
from day to day until its business is completed. Special meetings 
of the owners of trust certificates may be called by a majority of 
the trustees at such times and places as they may appoint. It 
shall also be the duty of the trustees to call a special meeting of 
the holders of trust certificates whenever requested so to do by a 
petition signed by the holders of 33 1/3 per cent, in value of such 
certificates. The business of such special meetings shall be confined 
to the objects specified in the notice given therefor. Notice of the 
time and place of all meetings of the owners of trust certificates 
shall be given by mailing a notice to the address of each certificate 
holder, so far as known, at least ten days before such meeting. 

Twenty-first. At any meeting by-lavv^s miay be made, amended, 
and repealed by not less than two-thirds in value of the holders of 
trust certificates: Provided, however, That said by-laws shall be in 
conformity with this agreement. By-laws may be also adopted by 
the trustees: Provided, however, that said by-laws shall not be in- 
consistent with any by-laws which have been or may be adopted 
by the holders of trust certificates, nor with this trust agreement. 



Representative Trusts 41 

Twenty-second. Whenever a vacancy occurs in the board of 
trustees from any cause other than the expiration of the term of 
office, the remaining trustees may appoint a trustee to fill the 
vacancy imtil the next annual meeting, or at their option may call 
a meeting of the owners of trust certificates for the purpose of 
electing a trustee to fill the vacancy or vacancies. 

Twenty-third. If, for any reason, at any time, a trustee or 
trustees shall be appointed by any court to fill a vacancy or va- 
cancies, the trustee or trustees so appointed shall hold his or their 
office or offices only until his or their successor or successors shall 
be appointed or elected in the manner above provided for. 

Twenty-fourth. It shall be obligatory upon ail trustees to attend 
each and every meeting of the board of trustees, either in person 
or by proxy, and in the event of any trustee absenting himself 
from three successive meetings or failing to be represented by proxy 
at such meetings, then, in such case, the office held by such trustee 
shall be considered vacant, and the vacancy be filled as hereinbe- 
fore provided. 

Twenty-fifth. Whenever any change shall occur in the board of 
trustees the legal title to the stock and other property held in 
trust shall pass to and vest in the successors of said trustees 
without any formal transfer thereof. But formal transfer shall 
be made, and it shall be the duty of the board of trustees to 
obtain the same, and it shall be the duty of any retiring trustee, 
or the executor or administrator of any deceased trustee, to make 
such transfer. 

Twenty-sixth. The trust shall continue for twenty-five years 
from this date and shall thereafter continue until terminated by a 
vote of 66 2/3 per cent, in value of the holders of certificates at a 
meeting called for that purpose. After 66 2/3 per cent, in value 
of the holders of trust certificates shall vote to terminate the trust 
as aforesaid, they may at the same meeting, or at a subsequent 
meeting called for that purpose, decide by a vote of 51 per cent, 
of their number the mode in which the affairs of the trust shall be 
wound up, and whether the trust shall be distributed, or whether it 
shall be sold and the value thereof distributed, or whether part, and 
if so, what part, shall be divided and what part shall be sold, and 
whether such sales shall be public or private. The trustees, who 
shall continue to hold their offices for that purpose, shall wind up 
the affairs of the trust in the mode agreed upon by the holders of 
trust certificates as aforesaid. 



42 



Industrial Combinations and Trusts 



No. 



Foryn of trust certificate. 
Shares of Sioo each. 



shares. 



DISTILLERS ANT) CATTLE TEEDERS' TRUST. 




This is to certify that 



is entitled to 



shares in the equity to the property held by the trustees of the 
Distillers and Cattle Feeders' Trust, transferable only on the books 
of said trustees on surrender of this certificate. This certificate 
is issued upon condition that the holder or any transferee thereof 
shall be subject to all the pro\dsions of the agreement creating said 
trust, and by the by-laws adopted in pursuance of said agreement 

as fully as if had signed the said trust agreement. 

Witness the hands of the president, secretar}^ and treasurer 

of the board of trustees, this day of , 

a. d. 1S8-, at the . 



•, President. 
, Treasurer. 
-, Secretary. 



[Back] 



For value received 



hereby sell and transfer to 

shares of the Distillers and Cattle Feeders' 

Trust, standing in my name on the books of said trust. And 

hereby irrevocably appoint attorney to make the 

necessary transfer upon the books of said trust in accordance "^ith 
the regulations thereof, and upon the conditions expressed upon the 
face of this certificate. 

Dated , 188-. 



In presence of . 

(Here follows Hst of signatures.) 



CHAPTER III 
LEGISLATIVE OPPOSITION TO THE TRUST 
NOTE 

The development of the Trust type of combination aroused a 
storm of opposition. This was scarcely remarkable. The power, 
intangibility and secrecy of the organization, its extra-legal char- 
acter and its lack of amenability to law all ran counter to American 
ideas of justice and legality. The opposition rapidly gathered 
strength. Under the pressure of public sentiment both the Re- 
publican and Democratic parties — although it was recognized 
that the campaign would be fought out on the tariff issue — in- 
serted Anti-Trust planks in their respective Presidential platforms 
in the conventions of 1888. This action later bore fruit in the pas- 
sage of the Sherman Anti-Trust Act of 1890. In the meantime, 
the State Legislatures had not been idle. The latter eighties and 
early nineties witnessed a flood of State Anti-Trust legislation, which 
swept the entire country. Kansas, Nebraska, Maine, Michigan, 
North Carolina, Iowa, Kentucky and Illinois were conspicuous 
leaders in the movement. By 1894, the statute books of about 
twenty States showed legislation of one kind or another looking 
toward the suppression of Trusts, Pools and other combinations. 
The exhibits in this chapter have been intended merely to give an 
idea of this legislation. — Ed. 

Exhibit i 
the sherman anti-trust law ^ 

An act to protect trade and commerce against unlawful restraints 
and monopolies. 

Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled , 

1 Act of July 2, 1890, 26 U. S. Stats, at Large, sist Cong., ist Bess., chap. 
647, p. 209. 

43 



44 Industrial Combinations and Trusts 

Sec. I. Every contract, combination in the form of trust or 
otherwise, or conspiracy, in restraint of trade or commerce among 
the several States, or with foreign nations, is hereby declared to be 
illegal. Every person who shall make any such contract or engage in 
any such combination or conspiracy, shall be deemed guilty of a mis- 
demeanor, and, on conviction thereof, shall be punished by fine not 
exceeding five thousand dollars, or by imprisonment not exceeding 
one year, or by both said punishments, in the discretion of the court. 

Sec. 2. Every person who shall monopolize, or attempt to mon- 
opolize, or combine or conspire with any other person or persons, to 
monopohze any part of the trade or commerce among the several 
States, or with foreign nations, shall be deemed guilty of a misdemea- 
nor, and, on conviction thereof, shall be punished by fine not exceed- 
ing five thousand dollars, or by imprisonment not exceeding one 
year, or by both said punishments, in the discretion of the court. 

Sec. 3. Every contract, combination in form of trust or other- 
wise, or conspiracy, in restraint of trade or commerce in any Ter- 
ritory of the United States or of the District of Columbia, or in 
restraint of trade or commerce between any such Territory and 
another, or between any such Territory or Territories and any State 
or States or the District of Columbia, or with foreign nations, 
or between the District of Columbia and any State or States or 
foreign nations, is hereby declared illegal. Every person who shall 
make any such contract or engage in any such combination or 
conspiracy, shall be deemed guilty of a misdemeanor, and, on con- 
viction thereof, shall be punished by fine not exceeding five thou- 
sand dollars, or by imprisonment not exceeding one year, or by both 
said punishments^ in the discretion of the court. 

Sec. 4. The several circuit courts of the United States are hereby 
invested with jurisdiction to prevent and restrain violations of 
this act; and it shall be the duty of the several district attorneys 
of the United States, in their respective districts, under the di- 
rection of the Attorney-General, to institute proceedings in equity 
to prevent and restrain such violations. Such proceedings may be 
by way of petition setting forth the case and praying that such 
violation shall be enjoined or otherwise prohibited. When the 
parties complained of shall have been duly notified of such petition 
the court shall proceed, as soon as may be, to the hearing and de- 
termination of the case; and pending such petition and before final 
decree, the court may at any time make such temporary restrain- 
ing order or prohibition as shall be deemed just in the premises. 



Legislative Opposition to the Trust 45 

Sec. 5. Whenever it shall appear to the court before which any- 
proceeding under section four of this act may be pending, that the 
ends of justice require that other parties should be brought before 
the court, the court may cause them to be summoned, whether 
they reside in the district in which the court is held or not; and 
subpoenas to that end may be served in any district by the marshal 
thereof. 

Sec. 6. Any property owned under any contract or by any com- 
bination, or pursuant to any conspiracy (and being the subject 
thereof) mentioned in section one of this act, and being in the course 
of transportation from one State to another, or to a foreign coun- 
try, shall be forfeited to the United States, and may be seized and 
condemned by like proceedings as those provided by law for the 
forfeiture, seizure, and condemnation of property imported into 
the United States contrary to law. 

Sec, 7. Any person who shall be injured in his business or prop- 
erty by any other person or corporation by reason of anything for- 
bidden or declared to be unlawful by this act, may sue therefor 
in any circuit court of the United States in the district in which the 
defendant resides or is found, without respect to the amount in 
controversy, and shall recover three fold the damages by him sus- 
tained, and the costs of suit, including a reasonable attorney's fee. 

Sec. 8. That the word "person," or "persons," wherever used 
in this act shall be deemed to include corporations and associations 
existing under or authorized by the laws of either the United States, 
or the laws of any of the Territories, the laws of any State, or the 
laws of any foreign country. 

Exhibit 2 



Be it enacted by the Legislature of the State of Kansas: 
Section i. That all arrangements, contracts, agreements, 
trusts or combinations between persons or corporations made 
with a view or which tend to prevent full and free competition 
in the importation, transportation or sale of articles imported into 
this state or in the product, manufacture or sale of articles of 
domestic growth or product of domestic raw material, or in the 
loan or use of money, or to fix attorneys' or doctors' fees, and ail 

1 State of Kansas, Session Laws of 1889, Chap, CCLVII, pp. 389 ff. 



46 Industrial Combinations and Trusts 

arrangements, contracts, agreements, trusts or combinations be- 
tween persons or corporations designed or which tend to advance, 
reduce or control the price or the cost to the producer or to the con- 
sumer of any such products or articles, . . ., are hereby declared 
to be against public policy, unlawful and void. 

Sec. 2. It shall not be lawful for any corporation to issue or to 
own trust certificates, other than the regular and lawfully author- 
ized stock thereof, or for any corporation, agent, ofi&cer or employes, 
or the directors or stockholders of any corporation, to enter into 
any combination, contract or agreement with any person or per- 
sons, corporation or corporations, or with any stockholder or di- 
rector thereof, the purpose and effect of which combination, con- 
tract or agreement, shall be to place the management or control 
of such combination or combinations, or the manufactured product 
thereof, in the hands of any trustee or trustees, with the intent to 
limit or fix the price or lessen the production and sale of any article 
of commerce, use, or consumption, or to prevent, restrict, or di- 
minish the manufacture or output of any such article. 

Sec. 3. That all persons entering into any such arrangement, 
contract, agreement, trust, or combination, or who shall, after the 
passage of this act, attempt to carry out or act under any such ar- 
rangement, contract, agreement, trust or combination described in 
sections one or two of this act, either on his own account or as 
agent or attorney for another, or as an officer, agent or stockholder 
of any corporation, or as a trustee, committee, or in any capacity 
whatever, shall be guilty of a misdemeanor, and on conviction 
thereof shall be subject to a fine of not less than one hundred dollars 
and not more than one thousand dollars, and to imprisonment not 
less than thirty days and not more than six months, or to both such 
fine and imprisonment, in the discretion of the court. 

Exhibit 3 

kentucky ^ 

{Act May 20, 1890) 

POOLS— TRUSTS— CONSPIRACIES 

§ 3915. Defined and prohibited. That if any corporation under 
the laws of Kentucky, or under the laws of any other State or 

^The Kentucky Statutes, 1894, Chap. loi, Sees. 3915-3919, pp. 1267-68, 



Legislative Opposition to the Trust 47 

country, for transacting or conducting any kind of business in this 
State, or any partnership, company, firm or individual, or other 
association of persons, shall create, estabhsh, organize or enter 
into, or become a member of, or a party to, or in any way interested 
in any pool, trust, combine, agreement, confederation or under- 
standing with any other corporation, partnership, individual or 
person, or association of persons, for the purpose of regulating or 
controlling or fixing the price of any merchandise, manufactured 
articles or property of any kind, or shall enter into, become a 
member of, or party to, or in any way interested in any pool, 
agreement, contract, understanding, combination or confedera- 
tion, having for its object the fixing or in any way limiting the 
amount or quantity of any article of property, commodity or 
merchandise to be produced or manufactured, mined, bought or 
sold, shall be deemed guilty of the crime of conspiracy, and pun- 
ished therefor as provided in the subsequent sections of this act. 

§ 39 1 6. Trust certificates— when sale of unlawful. It shall not 
be lawful for any corporation to issue or to own, have or sell any 
trust certificates or stocks, or for any corporation's agent, officer 
or employe, agent or director, or any corporation to enter into, 
either verbally or in writing, any combinations, contract, agree- 
ment or understanding with any person or persons, corporation 
or corporations, or with any director, agent or officer thereof, the 
purpose or effect of which combination, contract, agreement or 
understanding would be to place the management, control or any 
part of the business of such combination or association, or the 
manufactured product thereof, in the hands or under the control, 
in the whole or in part, of any trustee or trustees, or agents, or 
any person whatever, with the intent, or to have the effect to limit, 
fix, establish or change the price of the production or sale of any 
article of property or of commerce, or to prevent, restrict, or in any 
way diminish the manufacture or output of any such article or 
property. 

§3917. Penalties imposed on corporations and officers. If 
any corporation, company, firm, partnership or person, or association 
of persons, shall, by court of competent jurisdiction, be found guilty 
of any violation of any of the provisions of this act, such guilty 
party shall be punished by a fine of not less than five hundred dol- 
lars, and not more than five thousand dollars. Any president, 
manager, director or other officer or agent, or receiver of any cor- 
poration, company, firm, partnership or any corporation, company, 



48 Industrial Combinations and Trusts 

firm or association, or member of any corporation, firm or asso- 
ciation, or any member of any company, firm or other association, 
or any individual found, by a court of competent jurisdiction, guilty 
of any violation of this act shall be punished by a fine of not less 
than five hundred dollars nor more than five thousand dollars, 
or may be imprisoned in the county jail not less than six months 
nor more than twelve months, or may be both so fined and im- 
prisoned in the discretion of the court or jury trying the case. 

§3918. Contract in violation of law void. Any contract or 
agreement or understanding in violation of the provisions of the pre- 
ceding sections of this act shall be null and void; and any purchasers 
of property or article, or of any commodity, from any indi\ddual, 
firm, company or corporation transacting business contrary to 
the preceding sections of this act, shall not be liable for the price 
or payment of such article or commodity or property, and may 
plead and rely on this act as a complete defense to any suit for such 
price or payment. 

§ 3919. Charter of corporation forfeited upon conviction. If 
any corporation created or organized by or under the laws of this 
State shall be indicted and convicted for any violation of any of the 
provisions of this act, such indictment, trial and conviction in any 
court of competent jurisdiction shall have the effect to forfeit the 
charter of such corporation without any further proceedings on the 
subject of the forfeiture of its charter; but any corporation whose 
charter is so forfeited shall have the right of appeal as is provided 
in other cases, and the filing of the bond as is required by law shall 
suspend the judgment of forfeiture until same is passed upon by 
the court to which the case is appealed. 



Exhibit 4 

michigan ^ 

Section i. The People of the State of Michigan enact, That all 
contracts, agreements, understandings and combinations made, 
entered into, or knowingly assented to, by and between any parties 
capable of making a contract or agreement which would be vahd 
at law or in equity, the purpose or object or intent of which shall 

^ Public Acts and Joint and Concurrent Resolutions of the Legislature of the 
State of Michigan, 1889, No. 225, p. 331 ff. 



Legislative Opposition to the Trust 49 

be to limit, control, or in any manner to restrict or regulate the 
amount of production or the quantity of any article or commodity 
to be raised or produced by mining, manufacture, agriculture or 
any other branch of business or labor, or to enhance, control or 
regulate the market price thereof, or in any manner to prevent or 
restrict free competition in the production or sale of any such article 
or commodity, shall be utterly illegal and void, and every such 
contract, agreement, understanding and combination shall con- 
stitute a criminal conspiracy. And every person who, for himself 
personally, or as a member or in the name of a partnership, or as 
a member, agent, or officer of a corporation, or of any association 
for business purposes of any kind, who shall enter into or knowingly 
consent to any such void and illegal contract, agreement, under- 
standing or combination, shall be deemed a party to such conspir- 
acy. And all parties so offending shall, on conviction thereof, be 
punished by fine of not less than fifty dollars, nor more than three 
hundred dolltirs, or by imprisonment in the county jail not more than 
six months, or by both such fine and imprisonment at the dis- 
cretion of the court. And the prosecution for offenses under this 
section may be instituted and the trial had in any county where 
any of the conspirators became parties to such conspiracy, or in 
which any one of the conspirators shall reside: Provided , however ^ 
That this section shall in no manner invalidate or affect contracts 
for what is known and recognized at common law and in equity 
as contracts for the ''good will of a trade or business;" but all such 
contracts shall be left to stand upon the same terms and within 
the same limitations recognized at common law and in equity. 

Sec. 2. Every contract, agreement, understanding, and com- 
bination declared void and illegal by the first section of this act 
shall be equally void and illegal within this State, whether made and 
entered into within or without this State. 

Sec. 3. The carrying into effect, in whole or in part, of any such 
illegal contract, agreement, understanding or combination as men- 
tioned in the first section of this act and every act which shall be 
done for that purpose by any of the parties or through their agency 
or the agency of any one of them, shall constitute a misdemeanor, 
and on conviction the offenders shall be punished by imprisonment 
in the State prison not more than one year, or in the county jail not 
more than six months, or by a fine not less than one hundred nor 
more than five hundred dollars, or by both such fine and imprison- 
ment in the discretion of the court. 



50 Industrial Combinations and Trusts 

Exhibit 5 



An act to prohibit trusts in the State of North Carolina, and 
to provide for the punishment of persons connected with them. 

The General Assembly of North Carolina do enact: 

Section i. That all combinations and trusts as defined by this 
act are unlawful, and dangerous to the liberty of the people, and are 
hereby forbidden to be formed or carried on in this State. 

Sec. 2. That a trust is an arrangement, understanding or agree- 
ment, either private or public, entered into by two or more persons 
or corporations for the purposes of increasing or reducing the price 
of the shares of stock of any company or corporation, or of any class 
of products, materials or manufactured articles, beyond the price 
that would be fixed by the natural demand for or the supply of such 
shares, products, materials or manufactured articles; and any at- 
tempt to carry out such purpose shall be evidence that such ar- 
angement,^ understanding or agreement exists. 

Sec. 3. That any persons, company or corporation who shall 
form, or attempt to form, a trust in this State, or the agent or 
the representative of any trust in any State or county, who shall 
attempt to carry on operations in this State, shall be guilty of a 
misdemeanor, and upon conviction may be fined not more than 
ten thousand dollars or may be imprisoned not more than ten years 
for each offense. 

Sec. 4. That any person, company or corporation who enter 
into an arrangement, understanding or agreement not to mine, 
manufacture, buy, sell or transport more than a certain specified 
amount of any goods, products or commodities mthin a specified 
time, will have violated section three of this act and will be Hable 
to indictment therefor; and any person, company or corporation 
w^ho give bond or make a forfeit of any kind not to break such 
arrangement, understanding or agreement shall be guilty of a mis- 
demeanor, and on conviction thereof shall be fined or imprisoned, 
or both, in the discretion of the court. 

Sec. 5. That any merchant, broker, manufacturer or dealers 
in raw materials of any kind, or the agent of such persons, who shall 

^ Laws and Resolutions of the State of North Carolina, 1889, Chap. 374, 

PP- 372-373- 

2 Thus in original. — Ed. 



Legislative Opposition to the Trust 51 

sell any particular class of goods, raw materials or manufactured 
articles for less than actual cost for the purpose of breaking down 
competitors, shall be guilty of a misdemeanor, and upon conviction 
may be fined or imprisoned, or both, in the discretion of the court : 
Provided, that nothing contained in this act shall operate or be 
construed so as to forbid or prevent any person or persons who de- 
sire and intend to purchase any article or commodity for his or 
their own use or consumption, from combining or otherwise law- 
fully acting so as to protect or help themselves from imposition 
in the cost or purchase price of such articles or commodities as 
they or either of them may design and intend to use or consume. 

Sec. 6. That this act shall be in full force and effect from and 
after the first day of May of the year one thousand eight hundred 
and eighty-nine. 



CHAPTER IV 

JUDICIAL ATTACK ON THE TRUST 

NOTE 

Even before the passage by the State Legislatures and Congress 
of the mass of legislation referred to in the note to the preceding 
chapter the assault upon the trust form of combination had been 
begun through the judicial arm of government under existing law. 
The first gun of the attack was fired by the State of Louisiana against 
the American Cotton Oil Trust early in 1887, in an attempt to 
have that combination declared an illegal association, so far as its 
operations in the State of Louisiana were concerned, and to secure 
the liquidation and winding up of its affairs. This proceeding 
was shortly followed by a suit brought by the Attorney General 
of the State of New York against the North River Sugar Refining 
Company, one of the members of the Sugar Refineries Company. 
Almost simultaneously therewith, the sam^e trust was assailed in 
the Superior Court of California. In 1890 the State of Ohio began 
an action against the Standard Oil Company of Ohio, and in the 
same year, Nebraska brought suit against the Nebraska Distilling 
Company which had become a member of the Distillers and Cat- 
tle Feeders' Trust. Finally in 1891, a Federal Court declined 
positively to prevent a corporation by means of an injunction from 
violating a covenant made by it in consideration of its admission 
to a trust. In order to make absolutely clear the grounds upon 
which the illegality of the Trust was based, excerpts from some of 
these decisions have been given in the following pages. — Ed. 

Exhibit i 

STATE EX REL. ATTORNEY V. STANDARD OIL COMPANY ^ 

MiNSHALL, J. Three questions arise upon the pleadings: i. 
Should the defendant, The Standard Oil Company, be regarded as 
a party in its corporate capacity, to the agreement constituting the 
^ 49 Ohio St. 137; 30 N. E. 279. 
52 



Judicial Attack on the Trust 53 

Standard Oil Trust. 2. Had the company power to become a party 
to such an agreement. 3. If so, is the right of the state to demand 
a forfeiture of its corporate franchises, or of the power to make 
and perform such agreements, barred by lapse of time. 

I. It will be observed on reading the answer, that while the de- 
fendant denies that it '' entered into or become a party to either 
or both of the agreements in said petition set forth," and also, 
"denies that it has at any time or in any manner acquiesced in, or 
observed, performed or carried out either or both of said agree- 
ments," it does not deny the averment of the petition, that ''all 
of the owners and holders of its capital stock, including all the 
officers and directors of said company, signed said agreements." 
Nor could it have been the intention to do so, as the answer pro- 
ceeds to admit, " that it," the corporation, "is informed and beheves 
that the individuals named in the agreement, being the same in- 
dividuals who executed" it, "did enter into the agreements set 
forth" in the petition; claiming "that said agreements were agree- 
ments of individuals in their individual capacity and with refer- 
ence to their individual property, and were not, nor were they de- 
signed to be, corporate agreements." The claim is based upon the 
argument, that the corporation is a legal entity separate from 
its stockholders, that in it are vested all the property and powers 
of the company, and can only be affected by such acts and agree- 
ments as are done or executed on its behalf by its corporate agencies 
acting within the legitimate scope of their powers. That its stock- 
holders are not the corporation, that their shares are their individual 
property, and that they may each and all dispose of, and make such 
agreements affecting their shares, as best suit their private in- 
terests; and that no such acts and agreements of stockholders, 
subservient of their private interests, can be ascribed to the com- 
pany as a separate entity, though done and concurred in by each 
and all of its stockholders. 



Now, so long as a proper use is made of the fiction, that a cor- 
poration is an entity apart from its shareholders, it is harmless, 
and, because convenient, should not be called in question; but 
where it is urged to an end subversive of its policy, or such is the 
issue, the fiction must be ignored, and the question determined, 
whether the act in question, though done by shareholders, that is 
to say, by the persons united in one body, was done simply as 



54 Industrial Combinations and Trusts 

indix-iduals and with respect to their indi\'idual interests as share- 
holders, or was done ostensibly as such, but, as a matter of fact, 
to control the corporation and affect the transaction of its business, 
in the same manner as if the act had been clothed ■v\-ith all the 
formalities of a corporate act. This must be so, because, the stock- 
holders having a dual capacity, and capable of acting in either, 
and a possible interest to conceal their character when acting in 
their corporate capacity, the absence of the formal evidence of the 
character of the act, cannot preclude judicial inquiry on the sub- 
ject. If it were otherT\dse then, in one department of the law, fraud 
would enjoy an immunity awarded to it in no other. 

Therefore, the real question we are now to determine is, whether 
it appears from the face of the pleadings, giving effect to all the 
denials of fact contained in the answer, that the execution of the 
agreement set forth in the petition, should be imputed to the asso- 
ciation of persons constituting The Standard Oil Company of 
Ohio, acting in their corporate capacity. 

The agreement pro\ddes in the first place that the parties to it 
shall be di\dded into three classes, the first class to embrace all 
the stockholders and members of certain corporations and limited 
partnerships, the defendant, The Standard Oil Company of Ohio, 
being one. It is then covenanted by the parties, that, as soon as 
practicable a corporation shall be formed in each of certain states, 
under the laws thereof, Ohio being one, to mine for, produce, manu- 
facture, refine and deal in petroleum and all its products; with the 
pro\dso, however, that instead of organizing a new corporation, 
any existing one "may be used for the purpose when it can advan- 
tageously be done," and in Ohio the defendant has been so used. 

In a subsequent part of the agreement, nine trustees are selected, 
their powers and duties are defined, and pro\'ision made for the 
selection of their successors. 

As will hereafter appear, it is made the duty of the parties to the 
agreement, to transfer their stocks or interests in their respective 
companies or firms, to these trustees, who hold the same in trust, 
but \\-ith the power to vote on the same as though the real owners; 
in consideration of which, trust certificates are issued to the owners, 
who, as the owners of such certificates, elect the successors of the 
trustees. 

It is then pro\'ided that all the property, assets and business 
of the corporations and limited partnerships embraced in the first 
class "shall be transferred to and vested in the said several Stand- 



Judicial Attack on the Trust 55 

ard Oil Companies." And in order to accomplish this purpose, 
it is provided that "the directors and managers of each and all 
of the several corporations and limited partnerships mentioned in 
class first, are hereby authorized and directed by the stockholders 
and members thereof (all of them being parties to this agreement), 
to sell, assign, transfer, convey and make over, for the consideration 
hereinafter mentioned, to the Standard Oil Company or companies, 
of the proper state or states, as soon as said corporations are or- 
ganized and ready to receive the same, all the property, real and 
personal, assets and business, of said corporations and limited 
partnerships." 

Now, in the case of the defendant, it will be observed, that this 
contemplated, and could not have been accomplished, without 
corporate action. The Standard Oil Company of Ohio was re- 
quired to transfer all its property, assets and business to a new 
company to be organized in the state; and this was to be accom- 
pHshed by the obligation imposed on its members and stockholders, 
all of whom are parties to the agreement, to authorize and require 
the directors and managers to make the transfer. The property 
and assets of the corporation could only be transferred by a cor- 
porate act, and the agreement could not in this respect, be carried 
into effect, other than by such corporate act; and clearly indicates 
that the purpose of the stockholders of the defendant, in becoming 
a party to it, was to affect their property and business as a corpora- 
tion; in other words, was to act in their corporate, and not in their 
individual, capacity. 



Applying then the principle that a corporation is simply an 
association of natural persons, united in one body under a special 
denomination, and vested by the policy of the law with the capacity 
of acting in several respects as an individual, and disregarding 
the mere fiction of a separate legal entity, since to regard it in 
an inquiry like the one before us would be subversive of the purpose 
for which it was invented, is there, upon an analysis of the agree- 
ment, room for doubt that the act of all the stockholders, officers 
and directors of the company in signing it, should be imputed to 
them as an act done in their capacity as a corporation? We think 
not, since thereby all the property and business of the company is, 
and was intended to be, virtually transferred to the Standard Oil 
Trust, and is controlled, through its trustees, as effectually as 



56 Industrial Combinations and Trusts 

if a formal transfer had been made by the directors of the com- 
pany. 



It therefore follows, as we think, from the discussion we have 
given the subject, that where all, or a majority, of the stockholders 
comprising a corporation, do an act which is designed to affect the 
property and business of the company, and which, through the 
control their numbers give them over the selection and conduct of 
the corporate agencies, does affect the property and business of the 
company, in the same manner as if it had been a formal resolution 
of its board of directors; and the act so done is ultra vires of the 
corporation and against the public policy, and was done by them in 
their individual capacity for the purpose of concealing their real 
purpose and object, the act should be regarded as the act of the 
corporation; and, to prevent the abuse of corporate power, may be 
challenged as such by the state in a proceeding in quo warranto. 

2. That the nature of the agreement is such as to preclude the 
defendant from becoming a party to it, is, w^e think, too clear to 
require much consideration by us. In the first place, whether the 
agreement should be regarded as am-ounting to a partnership be- 
tween the several com.panies, limited partnerships and individuals, 
who are parties to it, it is clear that its observance must subject 
the defendant to a control inconsistent with its character as a cor- 
poration. Under the agreement all but seven of the shares of 
the capital stock of the company have been transferred by the real 
owners to the trustees of the trust, w^ho hold them in trust for such 
owners; and being enjoined by the terms of the agreement to en- 
deavor to have '' the affairs" of the several companies managed in a 
manner most conducive to the interests of the holders of the trust 
certificates issued by the trust, have the right, in virtue of their 
apparent legal ownership and by the terms of the agreement, to 
select such directors of the company as they may see fit, nay more, 
may in fact select themselves. The law requires that a corporation 
should be controlled and managed by its directors in the interest 
of its own stockholders, and conformable to the purpose for which 
it was created by the laws of its state. By this agreement, in- 
directly it is true, but none the less effectually, the defendant is 
controlled and managed by the Standard Oil Trust, an association 
with its principal place of business in New York City, and organ- 
ized for a purpose contrary to the policy of our laws. Its object 



Judicial Attack on the Trust 57 

was to establish a virtual monopoly of the business of producing 
petroleum, and of manufacturing, refining and dealing in it and 
all its products, throughout the entire country, and by which it 
might not merely control the production, but the price at its 
pleasure. All such associations are contrary to the policy of our 
state and void. Salt Co. v. Guthrie, ;^$ Ohio St. 666; Emery v. Ohio 
Candle Co, 47 id. 320. 

3. The defendant relies upon a provision in section 6789, Re- 
vised Statues,^ as a bar to the action. That provision is as follows: 

"Nothing in this chapter contained shall authorize an action 
against a corporation for forfeiture of charter, unless the same be 
commenced within five years after the act complained of was done 
or committed." 

It is contended, however, by counsel for the plaintiff, that this 
section does not apply to a proceeding instituted on behalf of the 
state by the attorney general to forfeit the charter of a corpora- 
tion; that it was only intended to apply to like proceedings by 
prosecuting attorneys. The argument is based upon what is claimed 
to have been the law prior to the revision, and that there could 
have been no intention to change it in this regard by the above 
provision. We cannot adopt this conclusion. 

But the whole of § 6789, Revised Statutes, is not quoted by the 
defendant; it further proceeds: "Nor shall an action be brought 
against a corporation for the exercise of a power or franchise under 
its charter which it has used and exercised for a term of twenty 
years." Therefore within that time such a proceeding may be 
brought. The defendant, as we have shown, in making and en- 
tering into the trust agreements, exercised a power for which it 
had no authority under the laws of this state, and is continuing 
to perform the agreement on its part. . . . 

Exhibit 2 

state v. NEBRASKA DISTILLING COMPANY^ 

Maxwell, J. 

This is an action of quo warranto brought in this court to obtain 
a forfeiture of the defendant's corporate franchise. One Woolsey 

^ Thus in original. — Ed. % 29 Neb. 700; 46 N. W. 155 



58 IxDusTRL^L Combinations and Trusts 

was permitted to intervene in the case. An answer was filed by the 
defendants and the cause referred to Judge Pound to take the 
testimony and find the issues of facts^ . . . 



Section 123 of chapter 16, Comp. Stats., pro\ides that "Any 
number of persons may be associated and incorporated for the 
transaction of any lawful business," etc. It is also pro\ided in 
chapter 15 that '"So much of the common law of England as is 
apphcable, and not inconsistent ^.dth the constitution of the United 
States, T^dth the organic law of this territory, or ^dth any law passed 
or to be passed by the legislature of this territory', is adopted and 
declared to be law within said territor}'."' These pro\'i5ions of 
statute were passed before the admission of the state into the Union 
and have continued in force ever since. A corporation therefore 
can only be organized under our laws for a lawful purpose, and any 
acts done by such corporation for the accomplishment of a purpose 
not lawful is unauthorized, in excess of its powers, and therefore 
illegal and void. The acts of a corporation, to be unlawful, need 
not necessarily be 7nala prohihita or malufn in se, although such 
acts are illegal in all cases, but any act of a corporation which by 
the terms of its charter it is not authorized to do, is in excess of its 
powers and therefore unlawful. 

Contracts in total restraint of trade, as that a person shall not 
csLiry on his business anywhere in the state, are void, no matter 
what the consideration may be, because the effect of such contract 
must be injurious to the pubhc. The early cases in regard to con- 
tracts in restraint of trade were reviewed by Parker, Ch. J., in 
Mitchel V. Reynolds, i P. Wm.'s iSi, decided in 1711, and it was 
held, in effect, that contracts in total restraint of trade were void, 
and that contracts in partial restraint of trade were also void, un- 
less there was a sufficient consideration and a good reason for 
entering into the contract. In Horner v. Ashjord, 3 Bing., 322, 
contracts in total restraint of trade were held to be void. To the 
same effect are Romer v. Graves, 7 Bing., 735; Hayward v. Young, 
2 Chitty R., 407. These cases have generally been followed in this 
countr}\ A well considered case on this subject is Lange v. Werk, 
2 0. St., 520, in which it was held that before such contract can be 
enforced, it must appear by the pleadings and proofs that the re- 
straint is partial, that it is reasonable, and founded on a good con- 
sideration, and this seems to be the law at the present time. {Law- 



Judicial Attack on the Trust 59 

fence v. Kidder, 10 Barb., 641; Fierce v. Fuller, 8 Mass., 22;^] Fainter 
V. Stebbins, 3 Pick., 188; Whitney v. Slay ton, 40 Me., 231; Nobles 
V. Bates, 7 Cow., 307; Duffy v. Shockey, 11 Ind., 71; Bowser v. Bliss, 
7 Blackf., 344; Beard v. Dennis, 6 Ind., 204; Chappel v. Brockway, 
21 Wend., 158.) 

Whatever tends to destroy competition and create a monopoly 
is contrary to public policy and therefore unlawful. {Coal Co. v. 
Coal Co., 68 Pa. St., 173; Craft v. McConoughy, 79 111., 346; Railroad 
Company v. Collins, 40 Ga., 582; Hazelhurst v. Railroad Co., 43 
id., 13; Trans. Co. v. Fipe Line Co., 22 W. Va., 600; Feople v. C. G. 
6^ r. Co., 22 N. E. Rep., 798; Richardson v. Buhl, 43 N. W. Rep., 
1 102.) In the latter case it was held that a contract in furtherance 
of a monopoly and growing out of transactions in connection there- 
with, is against pubHc policy, and although the question was not 
raised by the parties, yet the court of its own motion took notice 
of its illegal character and held it void. . . . 



In Salt Co. V. Guthrie, 35 O. S., 666, it is said: "Public poHcy un- 
questionably favors competition in trade to the end that its com- 
modities may be afforded to the consumer as cheaply as possible, 
and is opposed to monopolies which tend to advance market prices 
to the injury of the general public," etc. 

In Navigation Co. v. Railway Co., 130 U. S., i, the supreme court 
of the United States, in speaking of the proper construction of 
articles of association of corporations organized under general 
laws, says: "We have to consider, when such articles become the 
subject of construction, that they are, in a sense, ex parte. Their 
formation and execution — what shall be put into them, as well as 
what shall be left out — do not take place under the supervision 
of any ofi&cial authority whatever. They are the production of 
private citizens, gotten up in the interest of the parties who pro- 
pose to become corporators, and stimulated by their zeal for the 
personal advantage of the parties concerned rather than the general 
good. . . . These articles, which necessarily assume, by the sole 
actions of the corporators, enormous powers, many of which have 
been heretofore considered of a pubHc character, sometimes affect- 
ing the interests of the public very largely and very seriously, do 
not commend themselves to the judicial mind as a class of instru- 
ments requiring or justifying any very liberal construction. Where 
the question is whether they conform to the authority given by 



6o Industrial Combinations and Trusts 

statute in regard to corporate organizations, it is always to be 
determine upon just construction of the powers granted therein, 
with a due regard for all the other laws of the state upon that sub- 
ject. . . . The manner in which these powers shall be exercised, 
and their subjection to the general laws of the state, and its general 
principles of public policy, are not in any sense enlarged by insert- 
ing in the articles of association the authority to depart therefrom." 

This, vv^e think is a correct construction of the law relating to such 
articles and we adopt the same. Alcohol is an article of commerce. 
It is applied to a thousand uses in arts and manufactures. The 
amount which is rectified and used as intoxicating drinks forms 
but a very small part of the quantity actually distilled, and being 
an article of commerce, any contract creating a monopoly therein 
is against public policy and void. A corporation can exercise no 
powers except such as are granted to it, by the charter under which 
it exists. {Thomas v. R. Co. loi U. S., 71; O. Ry. Co. v. O. Ry. Co.^ 
iT)0 id., 1.) It is no part of the powers of the Distilling Company 
to sell all its property, real and personal, together with its franchise 
and powers necessary to properly carry on the business. (O. Ry. 
Co. V. 0. Ry. Co., supra.) The fact that the corporation has author- 
ity to put an end to its existence by a vote of a majority of its stock- 
holders, in which event it may proceed to settle up its affairs, dispose 
of its property, and divide its capital stock and surrender its charter 
to the state, does not authorize it to terminate its existence by a 
sale and disposal of all its property and rights. (Id.) 

The findings in this case, to which no objection is made, clearly 
show that the object of the Distilling Company in entering into the 
illegal combination was to destroy competition and create a 
monopoly, not only by limiting the production of alcohol, but by 
dismantling as many distilleries as the trust saw fit, absolutely 
prevent the manufacture of the article except in a few estabhsh- 
ments controlled by the trust, and thus it would be enabled to con- 
trol prices, prevent production, and create a monopoly of the most 
offensive character. Any contract entered into with such an object 
in view is, wider the laws of this state, null and void, and the convey- 
ance from the Distilling Company to the trust was in contravention 
of the authority conferred hy the statutes on that company in excess 
of the powers granted hy its charter, and against public policy and void, 
and no title passed hy such conveyance.^. . . 

^ Italics are the editor's. 



Judicial Attack on the Trust 6i 

. . . The act of 1889, in relation to trusts, has not been referred 
to, and its application to this case will be further considered. 

Exhibit 3 

PEOPLE V. north river SUGAR REFINING COMPANY^ 

Finch, J. The judgment sought against the defendant is one 
of corporate death. The State, which created, asks us to destroy; 
and the penalty invoked represents the extreme rigor of the law. Its 
infliction must rest upon grave cause, and be warranted by material 
misconduct. The life of a corporation is indeed less than that of 
the humblest citizen, and yet it envelopes great accumulations 
of property, moves and carries in large volume the business and 
enterprise of the people, and may not be destroyed without clear 
and abundant reason. 



Two questions, therefore, open before us: first, has the defendant 
corporation exceeded or abused its powers, and, second, does 
that excess or abuse threaten or harm the public welfare. 

. . . We find disclosed by the proof that it has become an in- 
tegral part and constituent element of a combination which 
possesses over it an absolute control, which has absorbed most of 
its corporate functions, and dictates the extent and manner and 
terms of its entire business activity. Into that combination, 
which drew into its control sixteen other corporations engaged in 
the refining of sugar, the defendant has gone, in some manner and 
by some process, for as an unquestionable truth we find it there. 
All its stock has been transferred to the central association of eleven 
individuals denominated a ''Board"; in exchange it has taken and 
distributed to its own stockholders certificates of the board carry- 
ing a proportionate interest in what it describes as its capital stock; 
the new directors of the defendant corporation have been chosen 
by the board, made eligible by its gift of single shares, and liable 
to removal under the terms of their appointment at any moment 
of independent action. It has lost the power to make a dividend, 
and is compelled to pay over its net earnings to the master whose 
servant it has becomxe. Under the orders of that master it has ceased 
1 121 N. Y. 582; 24 N. E. 834. 



62 Industrial Combinations and Trusts 

to refine sugar, and by so much, has lessened the supply upon the 
market. It cannot stir unless the m^aster approves, and yet is en- 
titled to receive from the earnings of the other refineries, massed as 
profits in the treasury of the board, its proportionate share for 
division among its own stockholders holding the substituted cer- 
tificates. In return for this advantage it has become liable to be 
mortgaged, not for its own corporate benefit alone, but to supply 
with funds the controlling board when reaching out for other and 
coveted refineries. No one can look these facts fairly in the face 
without being compelled to say that the defendant is in the com- 
bination and in to stay. Indeed, so much is with great frankness 
admitted on the part of the appellant. Its counsel concedes that 
the stock was transferred " to the board mentioned in the agreement 
and on the terms and for the purposes mentioned in the agreement; 
and that this action effectually lodged the control of the defendant 
company, so far as such control can be secured by the voting power, 
in that board." 



The combination, therefore, framed by the deed was a trust; and, 
if created by the corporations, or in any respect the consequence 
or product of their action, some inevitable results would be certain 
to follow. But here we encounter the stronghold of the appellant's 
argument which is, that if the corporations are in some manner in 
the combination, they are there solely as the result of a contract 
other than their own; are there without corporate action on their 
part; and so are sufferers and not sinners. The reasoning leading 
to that result is so severely technical as to have suggested a jus- 
tification almost reminding one of an apology. We are called upon 
to sever the corporation, the abstract legal entity, from the living 
and acting corporators; as it were, to separate in our thought the 
soul from the body, and, admitting the sins of the latter to ad- 
judge that the former remains pure. 



... I think there may be actual corporate conduct which is not 
formal corporate action; and w^here that conduct is directed or pro- 
duced by the whole body, both of officers and stockholders, by 
every living instrumentaHty which can possess and wield the cor- 
porate franchise, that conduct is of a corporate character, and if 
illegal and injurious may deserve and receive the penalty of disso- 



Judicial Attack on the Trust 63 

lution. There always is, and there always must be, corporate 
conduct without formal corporate action where the thing challenged 
is an omission to act at all. A corporation organized in the public 
interest, with a view to the public v\^elfare, and in the expectation 
of benefit to the community, which is the motive of the State's 
grant, may accept the franchise and hold it in sullen silence, doing 
nothing, resolving nothing, furnishing no formal corporate action 
upon which the State can put its finger and say, this the corporation 
has done by the agency through which it is authorized to act. 
That is corporate conduct which the State may question and punish 
without searching for a formal corporate act. The directors of 
a corporation, its authorized and active agency, may see the stock- 
holders perverting its normal purposes by handing it over, bound 
and helpless, to an irresponsible and foreign authority, and omit 
all action which they ought to take, offer no resistance, make no 
protest, but silently acquiesce as directors in the wrong which as 
stockholders they have themselves helped to commit. That again 
is corporate conduct, though there be an utter absence of directors' 
resolutions. It is asked what they could have done to prevent 
the organization of the trust; how they were negligent and unfaith- 
ful as corporate officers by their omission to act; what good a 
mere protest or objection would have accomplished; what effective 
form their resistance could have assumed? The answer is that 
they could have refused to recognize the illegal trust transfer of the 
stock; they could have declined to register the new ownership 
upon their stock-books; they could have said, and acted upon 
their words, that the original stockholders remained not only 
the beneficial, but the legal owners of the stock; and, if the board 
trustees appealed to the law, the resisting directors could chal- 
lenge the legality of the transfer as moulded by the combination 
agreement, and might have defeated the trust and shattered it at 
the outset of its career. So much they could have done as corpo- 
rate officers; so much it was their duty to have done as repre- 
sentatives of the corporation; and when, beyond that corporate 
neglect, they recognized the validity of the stock transfers in trust, 
put the new and unlawful ownership upon their books, and accepted 
its votes in the choice of new directors who were to throttle the in- 
dependence of the corporation and chain it to the will of the trust, 
I think we must shut our eyes in wilful bhndness if we fail to see 
both corporate neglect and corporate action. 



64 Industrial Combinations and Trusts 

The abstract idea of a corporation, the legal entity, the im- 
palpable and intangible creation of human thought is itself a fiction, 
and has been appropriately described as a figure of speech. It 
serves very well to designate in our minds the collective action 
and agency of many individuals as permitted by the law; and the 
substantial inquiry always is what in a given case has been that col- 
lective action and agency. As between the corporation and those 
with whom it deals, the manner of its exercise usually is material, 
but as between it and the State, the substantial inquiry is only 
what that collective action and agency has done, what it has, in fact, 
accomphshed, what is seen to be its effective work, what has been 
its conduct. It ought not to be otherwise. The State gave the 
franchise, the charter, not to the impalpable, intangible and al- 
most nebulous fiction of our thought, but to the corporators, the 
individuals, the acting and living men, to be used by them, to re- 
dound to their benefit, to strengthen their hands and add energy 
to their capital. If it is taken away, it is taken from them as 
individuals and corporators, and the legal fiction disappears. The 
benefit is theirs, the punishment is theirs, and both must attend 
and depend upon their conduct; and when they all act, collectively, 
as an aggregate body, without the least exception, and so acting, 
reach results and accomplish purposes clearly corporate in their 
character, and affecting the vitality, the independence, the util- 
ity, of the corporation itself, w^e cannot hesitate to conclude that 
there has been corporate conduct which the state may review, and 
not be defeated by the assumed innocence of a convenient fiction. 



It remains to determine whether the conduct of the defendant 
in participating in the creation of the trust, and becoming an el- 
ement of it was illegal and tended to the public injury and we may 
consider the two questions together and without formal separation. 

It is quite clear that the effect of the defendant's action was to 
divest itself of the essential and vital elements of its franchise by 
placing them in trust; to accept from the State the gift of corporate 
life only to disregard the conditions upon which it was given; to 
receive its powers and privileges merely to put them in pawn; 
and to give away to an irresponsible board its entire independence 
and self-control. When it had passed into the hands of the trust, 
only a shell of a corporation was left standing, as a seeming obe- 
dience to the law, but wdth its internal structure destroyed or re- 



Judicial Attack on the Trust 65 

moved. Its stockholders, retaining their beneficial interest, have 
separated from it their voting power, and so parted with the control 
which the charter gave them and the State required them to exer- 
cise. It has a board of directors nominally and formally in office, 
but qualified by shares which they do not own, and owing their 
official life to the board which can end their power at any moment 
of disobedience. It can make no dividends whatever may be its 
net earnings, and must incumber its property at the command of 
its master, and for purposes wholly foreign to its own corporate 
interests and duties. At the command of that master it has ceased 
to refine sugar, and without any doubt for the purpose of so far 
lessening the market supply as to prevent what is termed "over- 
production." In ail these respects it has wasted and perverted 
the privilege's conferred by the charter, abused its powers, and 
proved unfaithful to its duties. But graver still is the illegal action 
substituted for the conduct which the State has a right to expect 
and require. It has helped to create an anomalous trust which is, 
in substance and effect, a partnership of twenty separate cor- 
porations. The State permits in many ways an aggregation of 
capital, but mindful of the possible dangers to the people, over- 
balancing the benefits, keeps upon it a restraining hand and main- 
tains over it a prudent supervision, where such aggregation de- 
pends upon its permission and grows out of its corporate grants. 
It is a violation of law for corporations to enter into a partnership. 
(N. Y. 6* S. C. Co. V. F. Bank, 7 Wend. 412; Clearwater v. Meredith, 
I Wall. 29; Whittenton Mills v. Upton, 10 Gray, 596.) 



. . . It is said, however, that a consolidation of manufacturing 
corporations is permitted by the law, and that the trust or com- 
bination or partnership, however it may be described, amounts only 
to a practical consolidation which public policy does not forbid be- 
cause the statute permits it. (Laws of 1867, chap. 960; Laws of 1884, 
chap. 367.) The refineries did not avail themselves of that statute. 
They chose to disregard it, and to reach its practical results with- 
out subjection to the prudential restraints with which the State 
accompanied its permission. If there had been a consolidation 
under the statute, one single corporation would have taken the 
place of the others dissolved. They would have disappeared 
utterly, and not, as under the trust, remained in apparent existence 
to threaten and menace other organizations and occupy the ground 



66 Industrial Combinations and Trusts 

which otherwise would be left free. Under the statute the resultant 
combination would itself be a corporation deriving its existence from 
the State, owing duties and obligations to the State, and subject to 
the control and supervision of the State, and not, as here, an unin- 
corporated board, a colossal and gigantic partnership, having no 
corporate functions and owing no corporate allegiance. Under the 
statute the consolidated company taking the place of the separate 
corporations could have as capital stock only an amount equal 
to the fair aggregate value of the rights and franchises of the com- 
panies absorbed; and not as here a capital stock double that value 
at the outset and capable of an elastic and irresponsible increase. 
The difference is very great and serves further to indicate the in- 
herent illegahty of the trust combination. 



And so we have reached our conclusion, and it appears to us 
to have been established, that the defendant corporation has vio- 
lated its charter and failed in the performance of its corporate 
duties, and that in respects so material and important as to justify 
a judgment of dissolution. Having reached that result, it becomes 
needless to advance into the wider discussion over monopolies 
and competition and restraint of trade and the problems of political 
economy. Our duty is to leave them until some proper emergency 
compels their consideration. Without either approval or disap- 
proval of the views expressed upon that branch of the case by the 
courts below, we are enabled to decide that in this State there can 
be no partnerships of separate and independent corporations, 
whether directly, or indirectly through the medium of a trust; 
no substantial consolidations which avoid and disregard the statu- 
tory permissions and restraints, but that manufacturing corpora- 
tions must be and remain several as they were created, or one under 
the statute. 

The judgment appealed from should be affirmed with costs. 

All concur. 



CHAPTER V 

THE HOLDING COMPANY 
NOTE 

Long before the attack on the trust form of combination had 
ceased, the problem of the type of combination which should suc- 
ceed it had been solved. Until about 1870 the weight of English 
authority had been against the power of one corporation or company 
to become a shareholder in another, unless such power should have 
been expressly conferred. In this country the courts had inclined 
to the same view of the matter. In numerous cases, in the State 
courts, it had been repeatedly held that no corporation had the im- 
plied right to purchase the shares of another company for purposes 
of control, although it might come into possession of such stock 
as security for a debt or, in some cases, if the transaction could be 
regarded as one reasonable or necessary for effectuating the objects 
for which the company was incorporated. In the Federal courts, 
a similar attitude was taken. 

No more than the implied right to hold the stock of another cor- 
poration existed did any statutory enactments prior to 1889 author- 
ize such procedure. In that year, however, the State of New Jersey 
passed the noteworthy, — or notorious, — amendment to her cor- 
poration law permitting such action, a step in which she was 
subsequently followed by other states as well. The exhibits in 
this group have been designed to explain this development. — Ed. 

GROUP I 

power of one corporation to hold stock in another 

Exhibit i 

de la vergne refrigerating machine company v. german sav- 
INGS institution ^ 

(Supreme Court of the United States, October 30, 1899.) 
Statement by Mr. Justice Brown: 

1 175 U. S., 40. 
67 



68 Industrial Combinations and Trusts 

This was a consolidation of eight actions brought by the German 
Savings Institution and seven other plaintiffs, in the Circuit Court 
of the city of St. Louis, against the De La Vergne Refrigerating 
Company and John C. De La Vergne, its president and principal 
stockholder, personally, for a failure to deliver to plaintiffs certain 
stock in the Refrigerating Company. 

The principal question in this case is whether, under the laws 
of New York providing for the organization of manufacturing cor- 
porations, such corporations are authorized to purchase the stock 
of a rival corporation for the purpose of suppressing competition 
and obtaining the management of such corporation. 

The facts of the case are substantially as follows: The Con- 
solidated Ice Machine Company (hereafter referred to as the Con- 
solidated Company) w^as a corporation organized under the laws of 
Illinois, and was engaged in the business of manufacturing and sell- 
ing refrigerating and ice-making machines. The entire amount 
of issued stock of such corporation was $100,000, held in various 
proportions by the plaintiffs in this consolidated cause. Having 
become insolvent, the company, on October 14, 1890, made an 
assignment under the general laws of IlHnois, for the benefit of 
creditors, to one Jenkins, who, at the date of the contract sued upon, 
was engaged in winding up its business. 

However this may be, subsequently to the assignment, and on 
April 16, 1 89 1, the company itself, by its president as party of 
the first part, and its stockholders as parties of the second part, 
entered into an agreement with the De La Vergne Refrigerating 
Machine Company, a corporation organized under the laws of 
New York (hereinafter called the Refrigerating Company,) as 
party of the third part, and John C. De la Vergne, of the State of 
New York, president of that company, as party of the fourth part. 
This agreement is the basis of the action. After reciting that the 
Refrigerating Company was willing to acquire such right as the 
ConsoHdated Company and its stockholders could assign in and 
to the assets of such company; that under the laws of Illinois the 
Consolidated Company was not entitled to the possession of its 
assets in the hands of the assignee until its obligations had been 
discharged; that the Refrigerating Company was incorporated 
with a stock of $350,000 when its assets were worth $1,400,000; 



The Holding Company 69 

and that its stockholders were considering a plan of increasing the 
stock to $2,000,000, of which $1,000,000 was to be turned over to 
the ConsoHdated Company under the terms of the agreement: 

Therefore, in view of these facts, the ConsoHdated Company 
and its stockholders covenanted with the Refrigerating Company 
and its president, De la Vergne, to sell and convey unto the Re- 
frigerating Company all their right, title and interest in and to the 
assets of the party of the first part, subject to the payment of its 
obligations, and subject to the custody thereof in the legal custodian, 
R. E. Jenkins, assignee as aforesaid. 

The second clause contained a covenant to issue to the stock- 
holders of the Consolidated Company fully paid up stock in the 
Refrigerating Company to the amount of $100,000 in certain speci- 
fied proportions to each stockholder. 

By the fourth clause, the stockholders agreed within ten days 
from the date of the agreement to assign to De la Vergne, for the 
benefit of the Refrigerating Company, all stock of the insolvent 
company which had been issued, and which they guaranteed had 
been paid in full; and within sixty days thereafter the Refrigerating 
Company and its president agreed to issue and deHver to the stock- 
holders of the Consolidated Company stock in the Refrigerating 
Company to the amount of $100,000. 

By the fifth clause, the stockholders in the Consolidated Com- 
pany covenanted to accept in heu of the stock of the Refrigerating 
Company, $100,000 in cash, at the option of De la Vergne, the 
president of the company. 

By the seventh clause, the stockholders of the Consolidated Com- 
pany agreed that for a period of ten years they would not enter 
into or become engaged in the selling or making of refrigerators 
or ice machines, directly or indirectly, within the United States, 
excepting the state of Montana. 



. . . There was also a covenant that the Consolidated Company 
would not engage in a similar business within ten years from the date 
of the contract. The Refrigerating Company, however, did not avail 
itself of this opportunity to compromise with the creditors of the 
Consolidated Company, but allowed the assignee to dispose of the 
assets, which, on a forced sale, lacked $150,000 of being suflScient 
to pay the debts of the ConsoHdated Company. 



70 Industrial Combinations and Trusts 

But as the powers of corporations, created by legislative act, 
are limited to such as the act expressly confers, and the enumera- 
tion of these implies the exclusion of all others, it follows that, un- 
less express permission be given to do so, it is not within the general 
powers of a corporation to purchase the stock of other corporations 
for the purpose of controlling their management. 



Not only is this true as a general rule, but by the law of the 

State of New York, under w^hich this corporation was organized, 
i. e. "An act to authorize the formation of corporations for manu- 
facturing, mining, mechanical and chemical purposes," passed 
February 17, 1848, it was declared in section eight that "it shall not 
be lawful for such company to use any of their funds for the pur- 
chase of any stock in any other corporation." This language is 
clear and explicit, and evidently covers purchases of stock in other 
corporations, whether engaged in the same or different business. 

In this connection, however, our attention is called to an act 
passed by the legislature of New York, June 7, 1853, (chapter S33j) 
amendatory of the act of 1848, the second section of w^hich enacts 
that "the trustees of such company may purchase mines, manu- 
factories and other property necessary for their business, and issue 
stock to the amount of the value thereof in payment therefore." ^ 
The position of the plaintiffs in this connection is that, under the 
authority to purchase "other property necessary for their business," 
it was competent for manufacturing corporations to purchase the 
stock of other similar corporations. But we do not so read the act. 
Its evident object w^as to permit manufacturing corporations to 
purchase mines from which they could extract their own ore, or 
manufactories of raw material, such as pig iron or lumber, which 
could furnish to them material to be worked up into their own 
products; and in case such purchases involved a larger outlay than 
their present resources would justify, to issue new stock "to the 
amount of the value thereof in payment therefor." But there is 
nothing to indicate that the legislature intended to authorize them 
to purchase the stock of competing corporations, or corporations 
engaged in other business. It is only property necessary for their 
own current business they were authorized to purchase. 

Another act amending the general corporation act of 1848, passed 
April 28, 1866, (chapter 8:2^8,) was intended for a similar purpose. 
^ Thus in original. — Ed. 



The Holding Company 71 

By section three it was enacted that "It shall be lawful for any 
manufacturing company heretofore or hereafter organized under 
the provisions of this act or the act hereby amended, to hold stock 
in the capital of any corporation engaged in the business of mining, 
manufacturing or transporting such materials as are required in the 
prosecution of the business of such company, so long as they shall 
furnish or transport such materials for the use of such company, 
and for two years thereafter and no longer; and the trustees of such 
company shall have the same power with respect to the purchase of 
such stock and issuing stock therefor as are now given by law with 
respect to the purchase of mines, manufactories and other property 
necessary to the business of manufacturing companies. But the cap- 
ital stock of such company shall not be increased without the consent 
of the owners of two thirds of the stock, to be obtained as provided 
by sections twenty-one and twenty-two of the act hereby amended." 

The object of this act was evidently much the same as that of 
the prior act of 1853, that is, to enable manufacturing corporations 
to produce their own ore and manufacture their own raw materials. 
To meet the exigencies of this statute it is necessary that the com- 
pany, whose stock is purchased, should at the time of the purchase 
be engaged in the business of mining, manufacturing or transport- 
ing such materials as are required in the prosecution of the business 
of the purchasing company; and the right is limited to such time 
as they shall furnish or transport such materials for the use of such 
company, and for two years thereafter. It clearly has no applica- 
tion to a case where a manufacturing company purchases the stock 
of an insolvent rival concern which has ceased to do business, and 
whose stock is bought for the evident purpose of preventing a 
reorganization, and of obtaining its patronage. 

In the Revised Statutes of New York of 1889, c. 18, vol. 3, p. 1959, 
there is also an act, to which our attention is called by a supplemen- 
tal brief, permitting manufacturing companies to increase or dimin- 
ish their capital stock to any amount which may be sufficient and 
proper for the purposes of the corporation, and also to extend their 
business to any other manufacturing business subject to the provi- 
sions of the act. 

That neither of these acts were intended to give authority to 
corporations to purchase stock of other corporations engaged in the 
same business is evident from a subsequent act approved June 7, 
1890, to take effect May i, 1891, the fortieth section of which pro- 
vides that ". . . no corporation shall use any of its funds in the 



72 INDUSTRL4L COMBINATIONS AND TRUSTS 

purchase of any stock of its own or any other corporation, unless 
the same shall have been bona fide pledged, hypothecated or trans- 
ferred to it, by way of security for, or in satisfaction or part satis- 
faction of, a debt previously contracted in the course of its business, 
or shall be purchased by it at sales upon judgments, orders or de- 
crees which shall be obtained for such debts or in the prosecution 
thereof. Any domestic corporation transacting business in this 
State, and also in other States or foreign countries, may invest its 
funds in the stocks, bonds or securities of other corporations own- 
ing lands in this State or other States, if dividends have been paid 
on such stocks continuously for three years immediately before 
such loans are made, or if the interest on such bonds or securities 
is not in default, and such stock, bonds and securities shall be con- 
tinuously of a market value twenty per cent greater than the amount 
loaned or continued thereon." 

Had the former acts given the unlimited authority to purchase in- 
sisted upon by the plaintiffs, this act would have been entirely un- 
necessary, and instead of enlarging the power previously possessed, 
would have operated as a restriction upon it. That this act of 1890 
does not assist the plaintiffs is evident not only from the fact that 
the act did not take effect until after the contract w^as made, but 
from the further fact that it merely authorizes corporations to invest 
their funds in the stocks, bonds or securities of other corporations if 
dividends have been paid for three years before the loans are made; 
or if the interest on their securities is not in default, and such se- 
curities are worth twenty per cent greater than the amount loaned 
thereon. This act evidently refers to loans and not to purchases, 
since the section expressly provides that no corporation shall use its 
funds in the purchase of any stock, either of its own or any other 
corporation, unless by way of security for antecedent debts. 

The truth is, that the legislature of New York, instead of repeal- 
ing the prohibitory clause in the original act of 1848, concerning 
the purchase of stock in other corporations, has modified it but 
slightly, by slow degrees, and in special cases, to enable a manu- 
facturing corporation to control more perfectly its own legitimate 
business operations, and has thereby manifested the more clearly 
its intention to preserve the original inhibition. 

Our conclusion upon this branch of the case is that, as the main, 
if not the sole, object of the purchase from the plaintiffs was to ac- 
quire their stock in the Consolidated Company, such purchase 
was ultra vires the Refrigerating Company. 



The Holding Company 73 



GROUP 2 

difference between the trust and the holding company 

Exhibit i 

standard oil changes from a trust to a holding company.^ 
I. On March 2, 1892, a judgment was rendered in a suit brought 
in the Supreme Court of Ohio by the State of Ohio on the relation 
of the Attorney General, against the Standard Oil Co. (of Ohio), 
after hearing upon Bill and Answer. This decision rendered it 
inadvisable to continue the form of organization provided by the 
Trust Agreement for the management of the common properties. 
The certificate holders thereupon adopted the resolution set forth 
on pages 64-5 of the Government's Bill of Complaint, providing 
for the dissolution of the Trust. This resolution was adopted pur- 
suant to Article 21st of the Trust Agreement. 

Up to the time of the adoption of the resolution for the disso- 
lution of the Trust in 1892, many of the companies named in the 
Trust Agreement, and most of those organized or acquired sub- 
sequent to the formation of the Trust, had continued as separate 
corporate organizations. At that time a great many of these or- 
ganizations which no longer served any particular purpose were 
dissolved. 



2. The stocks of a number of important companies that had been 
held by the trustees were transferred directly to the Standard 
Oil Company (New Jersey) and have ever since been held by that 
Company. Among the stocks that have been so held in continuous 
ownership by the Standard Oil Co. (New Jersey) are the Chese- 
brough Manufacturing Company, Continental Oil Company, 
Galena Oil Works, Limited, Signal Oil Works, Limited, Standard 
Oil Company (Iowa), Vacuum Oil Company and the Waters- 
Pierce Oil Company, (Pet. Ex. 253, vol. 7, p. 448). 

3. The changes effected in the companies about the time of 
the resolution for the dissolution of the Trust left in the hands of the 
Trustees stock of the following companies: 

^ United States of America v. Standard Oil Company (N. J.) et al. Brief for 
Defendants on the Facts, In the Circuit Court of the United States for the 
Eastern Division of the Eastern Judicial District of Missouri, Vol. I, pp. 76-85. 



74 Industrial Combinations and Trusts 

Anglo-American Oil Co. Ltd. 

Atlantic Refining Co. 

Buckeye Pipe Line Co. 

Eureka Pipe Line Co. 

Forest Oil Co. 

Indiana Pipe Line Co. 

National Transit Co. 

New York Transit Co. 

Northern Pipe Line Co. 

Northwestern Ohio Natural Gas Co. 

Ohio Oil Co. 

Solar Refining Co. 

Southern Pipe Line Co. 

South Penn Oil Co. 

Standard Oil Co. (New Jersey) 

Standard Oil Co. (Indiana) 

Standard Oil Co. (Kentucky) 

Standard Oil Co. (of New York) 

Standard Oil Co. (of Ohio) 

Union Tank Line Co. 

Of these twenty companies, only three antedate the Trust agree- 
ment of 1882, to wit, the Standard Oil Co. (of Ohio) itself, the At- 
lantic Refining Co., all the stock of which had been held for the 
benefit of the Standard Oil stockholders since 1874, and the Na- 
tional Transit Co., which had been organized by Standard Oil 
interests. Of the remaining seventeen companies, six were pipe 
Hne companies, all of which had been organized and their properties 
created by Standard Oil interests for the common benefit of the 
certificate holders. The Anglo-American Oil Co., Ltd., the Solar 
Refining Co., the Standard Oil Co. (Indiana), the Standard Oil 
Co. (Kentucky), the Standard Oil Co. (New Jersey), the Standard 
Oil Co. of New York and the Union Tank Line had all been or- 
ganized by the Standard Oil trustees, and no one else had ever held 
any of their stock. Their capital had been paid for with the com.- 
mon moneys of the holders of the trust certificates, or with the 
properties of companies whose stocks were held by the trustees for 
their account. The South Penn Oil Co., the Ohio Oil Co. and the 
Forest Oil Co. were producing companies. The first had been 
originally organized by the Standard Oil trustees, and a large part 
of the properties of the others had been conveyed to them by com- 



The Holding Company 75 

panics organized by the Standard Oil trustees. The only one of 
the twenty companies of which the Standard Oil trustees did not 
own the entire stock was the Northwestern Ohio Natural Gas Co. 
(Def. Exhibits 271 & 272, vol. 19, pp. 643-4). Stocks of these 
twenty companies were the stocks to be distributed among the 
holders of Standard Oil Trusts certificates, pursuant to the reso- 
lution of March, 1892. ^ 

4. The Trustees to liquidate the Standard Oil Trust named in 
the resolution of March, 1892, notified all the certificate holders of 
the proposed distribution of stocks and requested them to submit 
their trust certificates for exchange into the stock of the twenty com- 
panies. (J. D. Archbold, vol. 17, p. 3384.) Several of the larger 
holders of certificates at once made the exchange, receiving shares 
and fractional shares in each of the several companies, bearing 
in each case the same proportion to the amount of stocks in those 
companies held by trustees that the trust certificates previously 
held by them had borne to the total amount of the trust certificates 
outstanding. The smaller certificate holders showed great reluc- 
tance about making the exchange. (J. D. Archbold, vol. 17, pp. 

3384-5) 

5. The unity of the business was universally recognized. Stocks 
in the separate companies had no recognized value, and were not 
bought or sold except as part of the group of stocks together repre- 
senting an interest in the business as a whole. The common own- 
ership was necessarily recognized in the conduct of the business 
of the separate companies and the entire business carried on with 
a view to the interests of the common owners. 



. . . The same people, in the same relations, continued. (J. D. 
Rockefeller, vol. 16, p. 3190.). . . . 

After the dissolution, as I have already stated, the election of 
the different companies was by this stock, and the administration 
of its affairs, its particular affairs, and the matter of the sale of its 
products was made as before, I suppose. Of course, in the matter 
of the distribution of these products I have not been concerned 
or interested or taken any part for long years; but let us take, for 
example, the Standard Oil Company of Ohio, of which I had been 
the President. As a practical question what would be done, I 
suppose, would be that the Standard Oil Company of Ohio would 
supply the trade which it could supply to the best advantage . . . 



76 Industrial Combinations and Trusts 

and it would be just the thing that was the natural thing to do in 
that regard. These properties were all of the one ownership. ... I 
mean that these people who had not returned their certificates 
and taken their interests in the constituent companies yet held 
the original trust certificates, and that was their evidence of their 
interest in the business; that relation was not changed. (J. D. 
Rockefeller, vol. i6, p. 3192) I suppose that as a matter of fact 
these companies, all being owned by the same people, would not be 
managing their separate businesses except in the way that would 
be the most productive for all the separate businesses. (J. D. 
Rockefeller, vol. 16, p. 3193) . . . The control of those different 
companies in each case was, as I have stated, by the stock hold- 
ings, and those companies were then, as now, in this common 
ownership. . . . There was no change of interest of the parties 
concerned ; that is, every man had just the precise proportion of all 
this business that he had had before, and so fast as these trust 
certificates were cancelled, then, instead of having one certificate 
to represent that precise interest, he had an interest in each one 
of those companies. (J. D. Rockefeller, vol. 16, p. 3194). 



TENTH. Upon the acquisition of the stocks of all the com- 
panies by the Standard Oil Company (New Jersey) each share- 
holder in the twenty companies became a shareholder in the 
Standard Oil Co. (New Jersey) in the same proportion in 
which he had held stock in each of the twenty Companies or 
in which stock therein had been held for his account by the 
Trustees. 

In 1899, the stock of the Standard Oil Company (New Jersey) 
was increased from $10,000,000, divided into 100,000 shares, to 
$110,000,000, divided into $100,000 shares preferred stock, and 
1,000,000 shares of common stock. The outstanding stock was 
to be treated as preferred stock. 

On June 19, 1899, the following resolution was adopted by the 
Board of Directors of the Standard Oil Co. (New Jersey). (Pratt, 
vol. I, pp. 83-4): 

"The president or one of the vice-presidents and the treasurer 
or one of the assistant treasurers, be and are hereby authorized 
to issue certificates of com^mon stock of this company and deliver 
the same, in purchase of the stocks of the following companies, 



The Holding Company 77 

at the rate of one share of common stock of this company for the 
following fractional shares, to wit: 

Anglo-American Oil Company, Ltd. - - - 26,000/972,500 

The Atlantic Refining Company ----- 50,000/972,500 

The Buckeye Pipe Line Co. ------ 200,000/972,500 

Eureka Pipe Line Company ------ 50,000/972,500 

Forest Oil Company --- - 55,000/972,500 

Indiana Pipe Line Co. -------- 20,000/972,500 

National Transit Company ------ 509,104/972,500 

New York Transit Company ------ 50,000/972,500 

Northern Pipe Line Company ------ 10,000/972,500 

The Northwestern Ohio Nat. Gas Co. - - - 32,785/972,500 

Ohio Oil Company .-------- 80,000/972,500 

The Solar Refining Co. ------»- 5,000/972,500 

Southern Pipe Line Co. -------- 50,000/972,500 

South Penn Oil Co. --------- 25,000/972,500 

Standard Oil Co. of Indiana ------ 10,000/972,500 

Standard Oil Co. of Kentucky ----- 10,000/972,500 

Standard Oil Co. of N. J. preferred stock - - 100,000/972,500 

Standard Oil Co. of N. Y. - - - - - - - 70,000/972,500 

Standard Oil Co. of Ohio ---- = -- 35,000/972,500 

Union Tank Line Company ------ 35,000/972,500 

Common stock of the Standard Oil Company {New Jersey) was 
issued to an amount exactly equal to the amount of trust certificates 
outstanding at the time of the dissolution of the Trust} The actual 
exchanges of stock are set out in detail in Defendants' Exhibit 
388 (vol. 19, p. 894). Few of the smaller holders of trust certificates 
exchanged their certificates for stock in the twenty companies} The 
total number of stockholders in the separate companies never ex- 
ceeded one hundred. (Def. Ex. 388, vol. 19, p. 894.) In June, 1899, 
there were still outstanding unexchanged over 300,000 shares of 
trust certificates. (Pet. Ex. 250, vol. 7, pp. 427-429.) 

After the adoption of the resolution of June 19, 1899, a method 
was devised to enable the small certificate holders to obtain the benefit 
of the resolution without going to the trouble of actually themselves ob- 
taining the stocks to which their trust certificates entitled them and which, 
under the terms of the resolution, they had to have in order to obtain 
common stock of the Standard Oil Co. {New Jersey)} This method 
is described on p. 3665, vol. 17, of the record. 
^ Italics are the editor's. 



78 Industrial Combinations and Trusts 

In the first instance shares of the Standard Oil Co. (New Jersey) 
were issued to both Mr. Rockefeller and Mr. Flagler and the shares 
owned by them respectively in the twenty companies. In i8gg 
and afterwards various holders of trust certificates in relatively small 
amounts, to avoid the tnconvenience to them of converting such certif- 
icates into shares or fractional shares of the twenty companies for the 
purpose of transferring such shares or fractional shares to the Standard 
Oil Co. {New Jersey) transferred their trust certificates to Mr. Rocke- 
feller or Mr. Flagler, and received from them shares of the Standard Oil 
Co. {New Jersey) owned hy Mr. Rockefeller or by Mr. Flagler, as the 
case might he.^ Mr. Rockefeller and Mr. Flagler later converted 
the certificates so transferred by them into the shares of the twenty 
companies, and then transferred those shares to the Standard 
Oil Co. (New Jersey) for its shares. The exchange of stocks was 
substantially completed in 1900. (Def. Ex. 388, vol. 19, opp. 
p. 894.) 

Each holder of stock in each of the twenty companies received the 
same proportion of the common stock of the Standard Oil Co. {New 
Jersey) that he had theretofore held in the stock of each of the twenty 
companies distributed by the Trustees. 

GROUP 3 

HOLDING company LAWS 

Exhibit i 

state of new jersey 2 

And be it enacted, That the directors of any company incorporated 
under this act may purchase mines, manufactories or other property 
necessary for their business, or the stock of any company or com- 
panies owning, mining, manufacturing or producing materials, 
or other property necessary for their business, and issue stock to 
the amount of the value thereof in payment therefor, and the stock 
so issued shall be declared and be taken to be full-paid stock and 
not liable to any further call, neither shall the holder thereof be 
Hable for any further payments under any of the provisions of this 
act; . . . 

1 Italics are the editor's. 

2 Acts of the 113th Legislature of the State of New Jersey, 1889. Chap. 
CCLXV, Sec. 4, P- 414. 



The Holding Company 79 



Exhibit 2 

STATE or NEW YORK ^ 

Any stock corporation, domestic or foreign, now existing or 
hereafter organized, except monied corporations, may purchase, 
acquire, hold and dispose of the stocks, bonds and other evidences 
of indebtedness of any corporation, domestic or foreign, and issue 
and exchange therefor its stock, bonds or other obHgations if author- 
ized so to do by a provision in the certificate of incorporation of 
such stock corporation, or in any certificate amendatory thereof 
or supplementary thereto, filed in pursuance of law, or if the cor- 
poration whose stock is so purchased, acquired, held or disposed 
of, is engaged in a business similar to that of such stock corporation, 
or engaged in the manufacture, use or sale of the property, or in the 
construction or operation of works necessary or useful in the busi- 
ness of such stock corporation, or in which or in connection with 
which the manufactured articles, product or property of such stock 
corporation are or may be used, or is a corporation with which such 
stock corporation is or may be authorized to consolidate. 

Exhibit 3 
state of delaware ^ 

Section 133. Any corporation created under the provisions of 
this act may purchase, hold, sell, assign, transfer, mortgage, 
pledge or otherwise dispose of, the shares of the capital stock of, or 
any bonds, securities or evidence of indebtedness created by any 
other corporation or corporations of this State or any other State, 
county, nation or government, and while owner of said stock may 
exercise all the rights, powers and privileges of ownership including 
the right to vote thereon. 

Exhibit 4 

state of maine ^ 

Section 14. Any corporation organized under chapter forty- 
eight of the revised statutes may purchase, hold, sell, assign, 

1 Laws of New York, 1892, Chap. 688, Art. Ill, Sec. 40, p. 1834. 

2 Laws of the State of Delaware, 1899, Chap. 273, Sec. 133, pp. 500-501. 

3 Laws of the State of Maine, 1901, Chap. 229, Sec. 14, p. 243. 



8o Industrial Combinations and Trusts 

transfer, mortgage, pledge or otherwise dispose of the shares of 
the capital stock of, or any bonds, securities or evidences of in- 
debtedness created by any other corporation or corporations of 
this or any other state, territory or country, and while owner of 
such stock may exercise all the rights, powers and privileges of 
ownership, including the right to vote thereon. 



CHAPTER VI 

FORMATION OF THE UNITED STATES STEEL CORPORATION 

NOTE 

It was only after careful consideration that the editor decided 
to incorporate in this volume anything in regard to the formation 
of the United States Steel Corporation. His hesitancy was due to 
the fact that the organization of this concern has been repeatedly 
written up: by Bridge in his "Inside History," by Meade in his 
"Trust Finance," by Berglund in his "United States Steel Cor- 
poration," and last, but not least, by the Commissioner of Cor- 
porations in his recent report. The circumstances lying back of the 
formation of this gigantic corporation are therefore well known. 
Two considerations finally led to the insertion of an account of 
the organization of the combination. The first was the de- 
sire for completeness; the second, the fact that a careful perusal 
of the somewhat conflicting testimony before the Stanley Com- 
mittee appeared to afford a more interesting story of the consolida- 
tion than has as yet appeared, more especially as it was from the 
lips of those who were most prominent in the matter. — Ed. 

Exhibit i 
testimony of john w. gates ^ 

The Chairman. The United States Steel Corporation was 
formed about 1901, was it not? 

Mr. Gates. 1901; yes, sir. It started in 1900 and finished in 
1901. 

The Chairman. At that time was there any danger of a second 
demorahzation in prices on account of the attitude of Mr. Carnegie 
toward the rest of these concerns? I believe up to that time a great 
many of them had been getting certain products from him, and 
manufacturing certain products themselves. In other words, along 
in 1898 or 1899 the Federal Steel Co. had its orbit or its scope of 
activities pretty well defined, did it not, and the other companies 

1 Hearings before the Committee on Investigation of the United States Steel 
Corporation, 62nd Cong., 2nd Sess., 1911-1912, pp. 30-32, 40 and 44. 

81 



82 Industrial Combinations and Trusts 

in the same way? Each had its own sphere of operations? They 
did not impinge one upon the other to any great extent? 

Mr. Gates. Well, I would have to explain by making a state- 
ment. Mr. Morgan, along about 1899 or 1900, organized the Na- 
tional Tube Co. by the acquisition of the stock of the National 
Tube Co., just out of Pittsburg, and the Riverside Steel Co., near 
Wheeling, and two or three more tube concerns, and they wxre 
making a good deal of money in the manufacture of tubes. Mr. 
Carnegie took it into his head that he would build a railroad from 
Lake Erie points — from some point on Lake Erie to his various 
works around Pittsburg — and that he would also build a tube 
works; and he proposed to build this tube works, if my memory 
serves me aright, at Ashtabula, Ohio, where a great deal of the ore 
is unloaded. Mr. Hill and Mr. Morgan had dined together — James 
J. Hill — and Mr. Morgan had expressed to Mr. Hill the fear that 
if Carnegie went into the building of railroads he would demoralize 
the entire railroad situation as he had demoralized the steel situ- 
ation, and that if he built a tube works at Ashtabula it would result 
in a demoralization of the prices of tubes. Mr. Morgan had just 
put the National Tube Co. together. After considerable talk 
between Mr. Hill and Mr. Morgan, Mr. Hill suggested to Mr. 
Morgan that he talk to me. Mr. Morgan said that we were not 
very friendly, and he asked Mr. Hill to come over to see me and see 
if I would meet him and talk about the situation, which I agreed 
to do. I had a talk with Morgan, and he asked me how I would 
suggest we could stop Carnegie from building this railroad and 
building this tube works; and I told him in my opinion there was 
only one man to talk to that had any influence with Mr. Carnegie, 
and that was Charley Schwab. He wanted to call in Frick. I 
said, "If you do, you will never make a trade wdth Mr. Carnegie." 
Well, he said, "Will you get Schwab on for a conference?" I said I 
would. I asked him where he wanted the conference, and he said 
he would prefer to have it at Philadelphia at the Bellevue- 
Stratford Hotel — no, the Bellevue Hotel. The Stratford was not 
built. I called Charley up on the telephone from New York and 
asked him if he would come over to Philadelphia, and intimated to 
him it was something pretty important. He said he would come 
over that night. 

Next morning was very stormy. It snowed and blew and was 
very cold, and Mr. Morgan called my son up and asked him to 
come over. 



Formation of United States Steel Corporation 83 

He went over, and Mr. Morgan explained to him that he had got 
a severe cold and his doctor would not let him go out; that he was 
afraid he would catch more cold; and would he go back and get me 
to arrange to have Schwab come on to New York. My son came 
back and reported to me, and I called Mr. Schwab up — he was at 
the Bellevue Hotel at Philadelphia — and asked him to come over. 
He came over and dined with me at the Manhattan Club, and 
we went up to Mr. Morgan's house about 9 o'clock in the evening. 
We discussed the possibility of pouring oil on the troubled waters 
and saving the situation. I think Mr. Schwab and I stayed there 
until about 6 o'clock the next morning. When we left a tentative 
plan had been drawn up for the purpose of getting the various 
corporations into one concern. Judge Moore, who was in the 
National Steel Co. 

The Chairman. I do not want to interrupt you, but the one 
concern to which you referred was the embryonic United States 
Steel Corporation? 

Mr. Gates. The United States Steel Co. Judge Moore and Mr. 
Frick felt very sore over the $1,000,000 that they had paid to 
Carnegie, for which they got nothing. Schwab stated that Mr. Car- 
negie would agree to anything he would suggest. He pulled a letter 
out of his pocket and showed it to Morgan and me, showing that he 
had a contract with Carnegie to pay him $1,000,000 a year for five 
years. We went on and laid out the plan of the United States Steel 
Corporation without consultation with Frick, who was a large owner. 
Then, as I understood it — but this only hearsay evidence 

The Chairman. Explain that plan as you go along. 

Mr. Gates. It was the plan that was adopted. 

The Chairman. That is, for a holding company? 

Mr. Gates. For a holding company. Judge Moore got hold of 
Carnegie, I was told, and said to Carnegie: "If you are going to 
take bonds in payment of your property, make those bonds cover 
the National Steel Co. as well as your own." Now, Mr. Carnegie 
demanded that of Morgan, and it enabled the National Steel Co., 
in my opinion, to get $50,000,000 more for their property than it was 
worth, because Carnegie would not turn his over unless they had a 
mortgage on the National, and the rest of us had to suffer. That 
is about the history of the United Steel. 

The Chairman. You spoke about pouring oil on the troubled 
waters and relieving the situation. What was the trouble with the 
situation? 



84 IxDusTRL\L Combinations asb Trusts 

Mr. Gates. The trouble was that Carnegie had threatened to 
build the tube niiil at Ashtabula and a railroad to haul his own ore 
down. 

The Chaiiqlin. He was going to build a railroad to come into 
competition vvith the existing railroads? 

Mr. Gates. Yes; and a tube plant to tear the National Tube, 
that Morgan had just put together, all to pieces. 

The CiLA[RiLA.x. He was going to give ^lorgan trouble, both in 
his manufacturing industr}- and with his common carrier? 

Mr. Gates. It looked that way. 

The Chaxeolan'. And it was to ob\'iate this anticipated com- 
petition that this tentative plan vras drawn up that after^'ards be- 
came the United States Steel Corporation? 

Mr. Gates. Yes, sir. 

The Cblacrman. How long was it from the time you got started 
until this industrial accouchement actually occurred? 

!Mr. Gates. It was 60 days, I should say, or less — maybe 40 
days. We worked pretty fast. 

The Chlierman. There was a thorough understanding, except 
as to details, as to the method of operation and what each man was 
to get, and what his relations were to be to his fellows, before the 
articles of incorporation were ever drawn up, was there not? 

Mr. Gates. I think they drew up the articles of incorporation 
for the United States Steel Corporation originally for $10,000, and 
then they gradually extended it as necessity arose. As each con- 
cern came in they would increase a few million or hundred million. 

The CiL\iRiLAN'. Mr. Carnegie, I beheve, got 8320,000,000 in 
bonds, did he not, for his property — for the Carnegie Co.? 

Mr. Gates. He got 8320,000,000 for what he had offered at 
$100,000,000 or $160,000,000 the year before, and got $1,000,000 
forfeit. 



The Ch^atrmla-N. I am now trying to get at what was the trouble. 
Was it not competition and threatened competition between these 
companies? 

^Ir. Gates. It was the threat of Carnegie to build a railroad from 
Ashtabula to his works at Pittsburg and to build a tube plant in 
competition T\'ith the National Tube Works, which Morgan had just 
finished. 



FOEMATION OF UNITED STATES StEEL CORPORATION 85 

The Chairman. Was not he also threatening to go into the entire 
iron and steel business — that is, to compete with the Bridge Co. and 
with the Steel Hoop Co. and the Sheet & Plate Co.? Was he not 
threatening to do all those things? 

Mr. Gates. Mr. Carnegie had been in the wire business and we 
bought him out. He put in $1,000,000 and we bought him out for 
half a million. [Laughter.] 

The Chairman. Was he not threatening to go back into that 
business? 

Mr. Gates. We never had any fear of Carnegie. 

The Chairman. Mr. Carnegie was also threatening to go into the 
tin-plate business, was he not, at that time? 

Mr. Gates. I guess he was threatening the whole line. 

The Chairman. He was threatening the whole line? 

Mr. Gates. He was trying to sell out, and he bought, you see, at a 
good price. [Laughter.] 

The Chairman. And the result of this threat along the whole line 
enabled him to sell this property that he had given an option on at 
$150,000,000 for about $500,000,000? 

Mr. Gates. That is inference on your part. The facts are that 
he gave an option for $100,000,000 or $160,000,000 and got 
$320,000,000 a little later. 



Mr. Beall. The real cause of complaint against Mr. Carnegie was 
that he would not abide by the agreement, but would insist on cut- 
ting the price? 

Mr. Gates. He was like a bull in a china shop. He would get a 
thing into his head once in a while and go and do absurd things, 
that I really think he did not think much about. 

Mr. Beall. Would those absurd things usually result in reducing 
the price of steel products? 

Mr. Gates. It might, or it might advance them. You could not 
tell what he would do. 

Mr. Beall. The fear was that if he carried out his plan there 
would be a competing line of railroad, as well as 

Mr. Gates. I can not state it any plainer than Mr. Morgan stated 
it to Mr. Schwab and me — that if Mr. Carnegie should build this 
tube works at Ashtabula and a railroad from Ashtabula to his works 
in the Pittsburg district it would demoralize the whole situation. 
That was Mr. Morgan's statement and not mine. 



86 Industrial Combinations and Trusts 



Exhibit 2 

testimony of elbert h. gary* 

Mr. Littleton. J. Edward Simmons? 

Mr. Gary. Yes ; J. Edward Simmons. Mr. Simmons, I tMnk, at 
the request of Mr. Frick, gave a dinner in New York, and invited 
Mr. Schwab, Mr. Morgan, and various other people to the dinner. 
Mr. Schwab made a httle statement at that dinner concerning the 
steel business that made quite an impression on Mr. Morgan. 

Mr. Young. Do you remember what the nature of that statement 
was — what it related to? 

Mr. Gary. It was concerning the great ability of the Carnegie Co. 
and concerning its cost of production, concerning its export busi- 
ness, which at that time, though small from the present standpoint, 
was considerable; and of course I have no doubt what Mr. Schwab 
had in mind was the idea of showing that it would be a great thing 
in 2 the Federal Steel should see its way clear to acquiring the 
Carnegie Steel Co. 

Mr. Young. Did he say anything about the conditions of com- 
petition in the steel business at that time? 

Mr. Gary. I was not there, and I do not know that he did. I am 
not sure about that. I doubt it. But the next thing I heard about 
it, one Sunday morning early, Mr. Robert Bacon came to my home. 

Mr. Young. Who was that? 

Mr. Gary. Mr. Robert Bacon, who was then a partner in the firm 
of J. P. Morgan & Co. — then a member of the firm — came to my 
home early Sunday morning, and said that the night before 
Mr Schwab had surprised Mr. Morgan by bringing him a letter from 
Mr. Carnegie stating that he, Mr. Carnegie, would sell his proper- 
ties and take his pay in bonds secured on the properties, as I remem- 
ber. He did not say anything to me about Mr. Gates having been 
there with Mr. Schwab. I can not deny that; I have no knowledge 
on the subject, but I am very sure that Mr. Schv/ab is mistaken in 
his statement. 

Mr. Young. You mean Mr. Gates is mistaken in his statement? 

Mr. Gary. I mean Mr. Gates is mistaken in his statement that 
during that night a plan was formulated for the organization of the 

^ Hearings before the Committee on Investigation of United States Steel 
Corporation, 62nd Cong., 2nd Sess. 1911-1912, pp. 205-211, 219-221. 
2 Thus in original. — Ed. 



Formation of United States Steel Corporation 87 

United States Steel Corporation. I know that could not be true, 
from what followed. That is, he is mistaken in supposing that that 
is true; that is what I mean. I do not know; I have no knowledge of 
his being there. I never heard of it until I read it in his testimony. 
It is not, to my mind, important whether he was there or not, but 
I think it is of some importance to consider whether they formu- 
lated, that night, a plan for the organization of the United States 
Steel Corporation. Anyhow, Mr. Bacon did not say anything to me 
about Mr. Gates or anybody else. He simply had that letter in 
which Mr, Carnegie offered to sell his properties and take his pay 
in bonds. 

Mr. Young. Did he fix any price on them? 

Mr. Gary. Yes; the price was fixed; the price afterwards paid in 
bonds. Mr. Bacon said Mr. Morgan requested him to come and 
see me early in the morning and present the whole question to me 
and get my opinion as to whether or not it was a practical business 
proposition or not. Mr. Bacon and I went over the matter thor- 
oughly, it seems to me, until lunch time. I think Mr. Bacon then 
went back to Mr. Morgan and came again in the afternoon and 
stayed with me until very late that evening, going over the matter. 

At that time, from the standpoint of the Federal Steel Co., the 
great necessity was for having additional finishing mills, and having 
a corporation of sufiicient capital and strength to be able to in- 
crease very materially its lines of business, particularly its export 
business, which at that time was comparatively small. As indicated 
in what I have referred to as a little article I wrote for the World in 
1900, 1 had referred to this subject matter of export business being 
necessary, and of the ability of a large and rich corporation to in- 
crease that export business, that being one of the objects of a large 
combination of capital. Germany, for instance, at the present 
time with a capacity of something like 9,000,000 tons a year — not 
to attempt to speak with strict accuracy — exports about 50 per 
cent of it to foreign countries, to neutral ports all over the world, 
and other foreign manufacturers have a large and increasing export 
business. We had a very small export business in this country of 
steel products, and it was necessary to do something to increase 
that, to secure and maintain a position in the trade, in our contest 
for a fair share of foreign business, that is the business that came 
from neutral ports all over the world; and I went into that subject 
very carefully with Mr. Bacon on that day, and there was a good 
deal of discussion between him and me in regard to the price which 



88 Industrial Combinations and Trusts 

Mr. Carnegie asked for his properties. I knew Mr. Carnegie had 
given an option on his interest in these properties at a much less 
sum, within two years. I have forgotten the exact date. But in 
the meantime the values of properties had very materially in- 
creased, particularly as to ore and coal properties, and the Carnegie 
Co. had shown by the results of its business that its earning capacity 
was increasing very rapidly, and that therefore its properties were 
much more valuable than they were at the time that that option 
was given. 

Mr. Bartlett. Was the Carnegie Co. a corporation or a partner- 
ship? 

Mr. Gary. It was a corporation at that time. Without being cer- 
tain about the names, I think the Carnegie Co. 

The Chairman. "Limited," it was called? 

Mr. Gary. No, sir; the Carnegie Co., the corporation, took over 
the Carnegie Steel Co. (Ltd.), a partnership, under the laws of Penn- 
sylvania, and that Vv^as the owner of various subsidiary companies. 

I said to Mr. Bacon, "There are a good many things to consider 
about this. If we can complete a corporation that is large enough 
and rich enough, wit^ sufficient financial resources, to furnish us 
adequate finishing mills and enable us to increase our export busi- 
ness as it ought to be increased, I believe that this proposition is at 
least worth considering." And it was then agreed between us that 
I should meet Mr. Morgan at his bank at ii o'clock on Monday. 
I did meet him there, and he and I spent some time going over tins 
matter, and I explained to him in detail the business reasons for 
entertaining this proposition, at least, and finally said to him, "It 
seems to me, if you think of this being practicable, we should start 
from the Federal Steel Co., and therefore the first thing to do is to 
call in the Federal Steel people who are in the management — ^prac- 
tically in control — of this corporation." 

Thereupon we telephoned for Mr. Norman B. Ream, who has 
been here, and who was one of the directors of the Federal Steel 
Co., who lived in Chicago but who happened to be in New York 
that morning, as I knew, because I had a letter from him that morn- 
ing from Chicago, and Mr. H. H. Rogers, another director of the 
Federal Steel Co., Mr. D. O. Mills, another director, Mr. H. H. 
Porter, another director, and we got into telephonic communica- 
tion, through Mr. Ream or otherwise, with Mr. Marshall Field, 
of Chicago, another director; and w^hen these gentlemen came to- 
1 Thus in original. — Ed. 



Formation of United States Steel Corporation 89 

gether, in my way I attempted to present to them the possibilities 
of an organization that would seem to me to be desirable and suc- 
cessful, and that would be a good, fair, business proposition, and 
that would meet what seemed to me to be the necessities, from 
the standpoint of the business of manufacturing and selling iron 
and steel in this country in competition with the other countries 
of the world, and Mr. Morgan said that so far as he was concerned 
he knew this would involve financial operations that were very 
important and very responsible, and anyone might hesitate in 
regard to it, and yet if we gentlemen reached the conclusion that 
it was a good business proposition and perfectly proper and safe 
and rehable from a business standpoint and every other way, he 
would consider acting as the financial sponsor or manager of a 
syndicate. After a good deal of discussion and consideration, 
while there was some opposition — a considerable opposition in the 
first place, particularly on the part of Mr. Porter — these gentlemen 
assented; and that is where we started. 

Mr. Young. At that time was anything contemplated except the 
joinder of the Federal Steel Co. and the Carnegie Co.? Had it 
grown any larger? 

Mr. Gary. It had grown in the conversation, yes; no doubt about 
it. Various other companies were mentioned, particularly the Wire 
Co., the Tube Co., and the Bridge Co., and later the National 
Steel Co., because I beheve it is true that Mr. Carnegie insisted 
that the National Steel should be acquired. I never knew until I 
read Mr. Gates's testimony that that was the result of Mr. Moore 
going to Mr. Carnegie and suggesting that. That may be true. 
I have no knowledge on the subject, but I do remember, during 
the negotiations, during the conversations, that the National Steel 
was spoken of. 

Mr. Young. Was Mr. Moore largely interested in the National 
Steel at that time? 

Mr. Gary. Yes; he was the dominant factor there. There was a 
group of men consisting of Mr. Moore, Mr. Reid, and Mr. Leeds, 
who were dominant in that company, and three other companies, 
the Tin Plate Co., the American Sheet Steel Co., and the American 
Hoop Co., whatever its technical name may have been; and, since 
you have asked that question, later came the consideration of the 
Rockefeller ores, with what was attached. The first proposition 
was as to whether or not we could organize a complete corporation 
which should be self-contained, which should be in a position to 



90 Industrial Combinations and Trusts 

operate at the lowest cost of production, and which would have 
sufficient finishing mills and sufficient capital to be able to compete 
with other manufacturers throughout the world. 

It was on that basis we started this organization; it was on that 
basis we completed it. 



It has been suggested here, and with reason, based on facts, that 
there was some competition between some of the companies which 
were taken into the United States Steel Corporation. There is no 
effort whatever to get away from the exact facts in regard to that, 
and I will be glad to give you — I think I can give you pretty accu- 
rately — just what that competition was; but, compared with the 
whole proposition taken up at that time, there was comparatively 
little competition between the different companies that went into 
the United States Steel Corporation, as I understand it, and in my 
opinion, from my \^evv'point. 

The Carnegie Steel Co. and the Illinois Steel Co. were in compe- 
tition in the manufacture of rails, one located at Pittsburg and the 
other at Chicago, the territories being quite remotely situated. 
The Carnegie mills largely supphed a territory which was not sup- 
pHed by the Illinois Steel Co., and the Illinois Steel Co. a territory 
which w^as not supplied to any extent — to any large extent — by the 
Carnegie Co. 

Then in plate to some extent the same applies between the 
Carnegie Co. and the Federal Steel Co., that is, through subsidiary 
companies of the Federal Steel Co. I will give you that a little 
more completely later, if you will allow me, because I do not want 
to disguise or minimize what that competition was ; but in my opin- 
ion the competitive feature applicable to these different companies 
was incidental. It was not the principal factor, not the important 
factor; certainly it was not so considered by me, not so stated, and 
not in our minds at that time; and in saying that I do not want to 
minimize the fact that there was competition, and I would be glad 
to give that to you exactly as it existed. 

Mr. Young. We would be very glad to have it. 

Mr. Gary. I have not undertaken to say anything about the pre- 
vious organizations of these subsidiary companies, and I am not 
trying to conceal that, at all. I have little knowledge in regard to 
them, except as to the Federal Steel. I did know, however, because 
I had been somewhat connected with it at an earher day, that the 



Formation of United States Steel Corporation 91 

Wire Co. had put together some wire companies which were in com- 
petition. That we had nothing to do with. We took the Wire Co. 
and all these other companies as we found them at the time. I did 
not know anything about the Tube Co. and I did not know any- 
thing about the Bridge Co. Mr. Roberts is here, and he can tell you 
all about the Bridge Co., and others can tell you all about the other 
companies. I knew Httle about them, and I doubt whether Mr. 
Morgan knew much about them. He had, though, in the way of 
financing or representing syndicates, I believe, some relation with 
the Tube Co. and with the Bridge Co. 

It has been stated during this investigation, I think, that there 
were threats on the part of Mr. Carnegie to build a tube mill, and 
that was an important factor. If that is so, I did not know of that, 
I did not hear of that, and I have no comments to make about it. 
It certainly was not spoken of in our deliberations. I had heard 
that Mr. Carnegie was considering — had said something about — 
building a railroad from Pittsburg to New York, and that had dis- 
turbed the Pennsylvania Railroad people. I had no knowledge on 
that subject. I do not remember to have heard it referred to at 
that time. 

Mr. Young. You are sure you heard no conversation by 
Mr. Morgan in regard to that railroad proposition? 

Mr. Gary. I do not remember to have heard anything about it, 
but I do not say that he did not speak about it. Of course others 
might correct me. I had heard, I know, that Mr. Carnegie talked 
of building a railroad from Pittsburg to New York because he got 
into some altercation with the Pennsylvania Railroad Co. in regard 
to freights from Pittsburg to Nev/ York. But I have heard a great 
deal — ^I have seen more or less in the newspapers — about a desire, 
a disposition, to eliminate Mr. Carnegie, and all that. I do not 
know. Mr. Carnegie was no doubt anxious to sell his properties 
at what he then considered was a good price and what he now con- 
siders was a very small price, as he has stated repeatedly and with 
emphasis, and we were desirous of securing the Carnegie properties 
and the other properties for the reasons I have given, and we se- 
cured them at the best prices obtainable, every one of them. If we 
paid too much, it was because we could not help ourselves; we could 
not get them without. I was in very close connection with this 
proposition from the beginning, as I have stated, until the corpora- 
tion was organized, being at Morgan's every day a part of the day 
and with the counsel in the case another part of most of the days. 



92 Industrial Combinations and Trusts 

When it came to deciding upon the form of organization, the charter, 
and by-laws, and all that sort of thing, I was present and partici- 
pated in it. Nothing was said about the form of the corporation 
until some time after the first meeting. I am very sure that up to 
that time Mr. Morgan had never given any thought to it, and cer- 
tainly from that time Mr. Gates never had anything whatever to do 
with it except in representing, with others, the Wire Co., in trying 
to get all he possibly could for himself and other stockholders. 

Mr. Bartlett. May I ask you a question there? This was in 
1901, was it? 

Mr. Gary. In 1901. 

Mr. Bartlett. At the time of the formation of the Federal Steel 
Co.? 

Mr. Gary. No, no; the United States Steel. The Federal Steel 
was organized in the summer of 1908. I think it required two or 
three months' work — about three months' work — before we com- 
menced operations ; or, at least, the company was embarked about 
the ist of November, 1908. ^ 

Mr. Bartlett. Was it in 1905 2 that the threat was abroad, or sug- 
gested, or afloat, that Mr. Carnegie was to build this tube works and 
the railroad? 

Mr. Gary. Judge Bartlett, I never heard anything about the tube 
works, and I do not know anything about that. 

Mr. Bartlett. I find in Mr. Schwab's testimony before the Ways 
and Means Committee in 1908, the following on that subject: 

Mr. CocKRAN. And in 1901, when there was an announcement or threat that 
there would be some competition through Mr. Carnegie's going into the tubing 
business, the Carnegie Co. going into it, there was another consohdation in 
which they were all merged in one company, and the price continued the same? 

Mr. Schwab. Quite correct. 

That is from Mr. Schwab's testimony before the Ways and Means 
Committee. 

Mr. Gary. I want to say this. I beheve, so far as the business 
part of the organization of the United States Steel Corporation is 
concerned, that I am as familiar as anyone with it. I think I 
had more to do with that proposition than anyone else. I think 
Mr. Morgan relied upon me to a large extent with reference to the 
business part of it, and the question of a tube company, a proposed 

1 Dates thus in original. Should be 1898, the year the Federal Steel Co. was 
formed. — Ed. 

2 Date in error. — Ed. 



Formation of United States Steel Corporation 



93 



tube mills, by Mr. Carnegie, did not enter into the calculations, so 
far as I know. I can not say what was in Mr. Carnegie's mind or 
in the minds of others. 

Mr. Bartlett. On page 1 641 of the same hearing before the Ways 
and Means Committee, Mr. Schwab testified as follows: 

Mr. Schwab. The consolidation, as you term it, of the steel corporations in 
about the year 1901 came about in this way: 

Mr. Morgan asked me if Mr. Carnegie wanted to sell his interests in iron and 
steel; that he then had large interests in the Federal and other companies. I 
approached Mr. Carnegie, and Mr. Carnegie said he would sell, and we sold 
our company to Mr. Morgan, under conditions with which you are all familiar. 
We knew the properties Mr. Morgan controlled and upon which he was to give 
us a mortgage bond, and that is all there was to it. 

Mr. Gary. I, of course, can not speak for anyone else but myself. 
I have given my recollection of the facts leading up to and resulting 
in the formation of the United States Steel Corporation, from my 
standpoint, and from my own connection and knowledge. I can not 
speak for others. I do not know what was in their minds. I only 
know of my connection. 



Mr. Young. Now, you will remember when we adjourned last 
night you were just starting to make a statement of the competition 
which existed between the different units of the United States Steel 
Corporation before they were consolidated into that company. 
Please proceed with that. 

Mr. Gary. The Carnegie Steel Co., the subsidiary companies of 
the Federal Steel Co., the American Steel Hoop Co., and the Na- 
tional Steel Co. were to some extent in competition. The four com- 
panies were not competitive with one another on all the lines of the 
production of the respective companies. The greater part of the 
National Steel Co.'s product was billets and sheet bars and were 
sold to the American Tin Plate and also to the Sheet Steel Co. I 
thought I could give you now the percentage perhaps of the com- 
petition, but I can not do that without further inquiry. 

The American Wire & Steel Co., the National Tube Co., the 
American Tin Plate Co., the American Sheet Steel Co., the Ameri- 
can Bridge Co., and the Lake Superior Consolidated Iron Mines 
were not in competition with one another or with the other com- 
panies. When we commenced business 



94 Industrial Combinations and Trusts 

Mr. Young (interposing). Before you go on with that, will you 
state what were the articles manufactured by these companies in 
the first group ; what competing company did compete? 

Mr. Gary. I stated that the other day about as fully as I can. I 
would say that the principal competition was between the Illinois 
Steel Co. and the Carnegie Co. in the sense of making the same 
articles or some of the same articles; they were substantially in com- 
petition. I do not wish to minimize that. That is true in the manu- 
facture of rails particularly. So far as products are concerned, they 
were in substantial competition, and I would say that those were 
the principal articles. 

However, as you know, the freight rates from Pittsburg to Chi- 
cago are quite large and I beheve at that time were in the neighbor- 
hood of $3 per ton. The market of the Illinois Steel Co. was in the 
great and growing West largely. That is, they supplied largely the 
western railroads who had terminals in Chicago, and of course they 
did, to some extent, furnish rails to railroads which came from the 
East and had their terminals in Chicago, but the Carnegie Steel 
Co. in turn had a natural market which surrounded its plant — that 
is, the railroads having terminals in Pittsburg — and when you con- 
sider the respective territory or fields of the two, there was not so 
much competition as it would appear, although it is the fact that 
the Carnegie Co. did in time come into the western field and into 
territories which were not controlled to the extent at that time at 
least of selling rails, I believe, as low as $i6 a ton, at a time when 
the Illinois Steel Co. was considering going into the hands of a 
receiver and came very near it. It did not pay any dividends, so 
far as I know, and I beheve it did not pay any dividends at all, 
up to 1899. 

Mr. Bartlett. Right there. When was the Federal Steel Co. 
formed? 

Mr. Gary. In 1898. 

I beheve, perhaps, if unrestricted and unchecked destructive 
competition had gone on the Illinois Steel Co. would undoubtedly 
have been driven out of business and, perhaps, I might say more. 
I do not say it with a view of casting any reflection upon anyone's 
management, but it is not at all certain that if the old management 
or the management which was in force at one time had continued, 
the Carnegie Co. would not have driven entirely out of business 
every steel company in the United States. Perhaps you are suffi- 
ciently famihar with the facts to determine whether that is a justi- 



Formation of United States Steel Corporation 95 

fied statement, but certainly that is the opinion of a great many 
different people, notwithstanding conditions had improved after 
the Federal Steel Co. was formed and everyone was getting on a 
better basis and we had reached the point where we saw it was pos- 
sible to organize a company which would be self-contained and 
which would, as I have said, secure a very large proportion of the 
export business. 

Exhibit 3 

testimony of CHAS. M. SCHWABi 

The Chairman. Tell us who sat next to you. 

Mr. Schwab. Mr. Morgan sat next to me on my right and Mr. 
Simmons at my left. There were distinguished men of New York 
present — Mr. Harriman, Mr. Morton, Mr. Carnegie, Mr. Phipps, 
and a great number— 70 or 80. The names are probably available, 
if you would like to have them. I went home from that dinner to 
Pittsburg, and thought no more about the matter for some time. 
One day I had a telephone call from Mr. John Gates, from New 
York, a long distance call, who asked me if I would meet Mr. 
Morgan in Philadelphia the following day. I told him that I 
would. I went to Philadelphia, and Mr. Gates telephoned that 
Mr. Morgan was ill, and so I met Mr. Morgan at his house in 
New York, I think, the day following, or probably the same day. 
Very shortly, at any rate. 

Mr. Morgan then asked me to go over with him again in more de- 
tail the substance of what I had talked about at the dinner, and we 
spent several hours in doing so. There were other gentlemen pres- 
ent at that meeting, and the whole matter was discussed most 
thoroughly from the point of view that I have spoken of at that 
interview. 

The Chairman. You were the only speaker at that dinner? 

Mr. Schwab. I was. 

The Chairman. And you spoke for an hour or so? 

Mr. Schwab. I would say so; yes, sir. 

The Chairman. And Mr. Morgan requested that you go over with 
him again in detail fully all the arguments that you had made at the 
previous dinner? 

Mr. Schwab. I will not say arguments — statements of fact, 
statements of opinion, rather; quite so. Then, of course, he asked 

1 Hearings before the Committee on Investigation of United States Steel Cor- 
poration, 62nd Cong., 2nd Sess., I9ii-i9i2,pp. 1278-79, 1311-14. 



96 Industrial Combinations and Trusts 

me questions about it, and finally said to me, within a day or so, 
that he was fully con\inced about the advantages of such an organi- 
zation. 

The Chairman. That is, one corporate entity? 

Mr. Schwab. The Steel Corporation as to-day formed; yes. 

He asked me if I could get a price from Mr. Carnegie at which he 
would sell his works. I had not taken the matter up with Mr. 
Carnegie at all, had not spoken to him of my visit to Mr. Morgan. 
In the course of a week or so, spending the day with Mr. Carnegie, 
a favorable opportunity arrived, and I did tell him what I had said 
to Mr. Morgan, and advised j\Ir. Carnegie, at his age and mth his 
desire in hfe, philanthropic in character, that he ought to sell his 
plant, and I told him how I thought it might be done. It was with 
a great deal of reluctance that Mr. Carnegie finally did agree to sell 
his plant, and I might say to you that it was my opinion that he 
afterwards regretted very much that he had made a price upon his 
plant. 

The Chairman. Did Mr. Morgan indicate to you anything about 
the limit of cost at which those properties could be bought? In 
other words, were you instructed to get an option at not to exceed 
$500,000,000, for instance, or to buy them at any price? 

Mr. Schwab. No; I had no authority to negotiate anything of 
that kind? 

The Chairman. Was there any concern on the part of the pur- 
chasers as to the price? 

Mr. Schwab. My only advice from Mr. Morgan was to get a price 
from Mr. Carnegie, at which price he would see if they could afford 
to purchase the property. I got the price from Mr. Carnegie and 
took it to Mr. Morgan, and beyond being consulted with reference 
to general \dews, values of the properties, probable earnings, and so 
forth, I had nothing further to do with the organization of the 
United States Steel Corporation. 



Mr. Bartlett. The consolidation, as I understand, of the United 

States Steel Corporation was about 1901? 

Mr. Schwab. Yes, sir. 

Mr. Bartlett. Prior to the consolidation, there were not only 
rumors, but a purpose on the part of the Carnegie Steel Co. to ex- 
tend its business in building tube works? 



Formation of United States Steel Corporation 97 

Mr. Schwab. There has been a report current that the Carnegie 
Steel Co. threatened to extend into the Hne of tubes prior to the 
formation of the United States Steel Corporation, and that that had 
something to do with the formation of the United States Steel Cor- 
poration. I want to say that the Carnegie Steel Co.'s intention to 
extend their lines into tubes was the same practice that they had 
followed in all their manufacturing, which was to gradually extend 
their lines of manufacture into different articles. That is what we 
intended to do in tubes, and there was no threat or menace or any- 
thing regarding it. 

Mr. Bartlett. Except the publication in the newspapers that 
they intended to do so? 

Mr. Schwab. I do not know whether it was published at that 
time, or after the formation of the United States Steel Corporation. 

The Chairman. Was that not the statement of Mr. Carnegie, 
mentioned by Mr. Gates, that he was going to put up a tube mill on 
Lake Erie 

Mr. Schwab (interrupting). At Conneaut. 

The Chairman. That is on the Hne of the Lake Erie & Bessemer 
road? 

Mr. Schwab. Yes, sir. 

The Chairman. Did not that disturb very vitally the tube com- 
pany? 

Mr. Schwab. Well, if it did, I did not know. I knew Mr. Con- 
verse and other people connected with the tube industry. I visited 
their works at the time. I prepared the plans for the works at 
Conneaut, and from all I knew of their feelings, they were not seri- 
ously alarmed at our going into the tube business. They felt that it 
was inevitable that the company should do so. 

The Chairman. Is Mr. Converse a man who would be seriously 
alarmed unless there was something seriously alarming? 

Mr. Schwab. He is very reHable. 

The Chairman. He is a man like most all the ironmasters — sl man 
of good nerve, fine business sense and courage? 

Mr. Schwab. He is. 

The Chairman. And if he or his company were alarmed they 
would be apt to have some reason? 

Mr. Schwab. I think so. 

The Chairman. I want to call your attention to an excerpt of the 
minutes of the National Tube Co., dated January 15, 1901. That 
was about the time? 



98 Industrial Combinations and Trusts 

Mr. Schwab. I think so. 

The Chairman. I quote from a copy made by Mr. MacRae, the 
accountant for the committee, copied by him and verified by him 
from the minutes of the National Tube Co. He is, I beheve, the 
president of the Certified Accountants of New York: 

Book marked "No. i," National Tube Co., from January 15, 1901, to date, 
containing all minutes of said company. 

Here, under this date, I find this entry: 

Rumors of new competition, etc. Mr. Converse said that there were rumors 
that the Carnegie Co. is about to install and operate a tube works with a 
capacity of 280,000 tons per annum. 

Was that about the size of the anticipated tube works? 
Mr. Schwab. Probably; yes, sir. 
The Chairman (reading): 

It is well known the tendency, lately so conspicuous, to establish a commu- 
nity of ownership or a unified control over great industries as the only means of 
restraining destructive competition, lead to the incorporation of various great 
companies. 

Was that the motive that led to the incorporation of the Carnegie 
Steel Co.? 

Mr. Schwab. It was not my understanding of the motive. May 
I be permitted to tell you something relative to this tube company 
at this point that might be of interest? 

The Chairman. To return to this matter — 

During the 18 months this corporation has run there has never been a time 
when it could not have manufactured to advantage and profit material in com- 
petition with nearly all of the numerous industrial groups, including the Car- 
negie Co., but the policy of the management so far has been that except forced 
by self-protection, this company would not displace a ton of its neighbor's prod- 
uct by entering any other lines than strict tubular goods. It has rigidly con- 
fined itself to this principle up to this time. The Carnegie Co. is now enjoying 
trade in plates on ships at the rate of about 150,000 tons per annum with the 
National Transit Co., a department of the Standard Oil Co. 

Is that true? 

Mr. Schwab. We sold the Standard Oil Co. a great many plates; 
yes, sir; that is true. 
The Chairman (reading) : 

This is more than equal to any tonnage which the Carnegie Co. has ever 
made for tubular purposes. From this it will be seen that the Carnegie Co. inter- 
ests have been protected through the care and friendliness of the Standard Oil — 



Formation of United States Steel Corporation 99 

Is that true? 

Mr. Schwab. Well, I was not aware of it. 

The Chairman (reading) : 

And National Companies, and under the full belief warranted by the facts, 
statements, and circumstances, that such an arrangement would fully satisfy 
the Carnegie Co. in their ample demand for their full measure of steel tonnage 
for conversion into tubular products. In all of the arrangements between 
the National Steel, Republic, American Sheet Steel & Plate, and others of the 
industrial steel groups, it has been the unwritten law that each group should 
confine itself to the fabrication of its own specialties and should voluntarily 
refrain from using constant surplus of material by the production of the special 
product of its neighbors. If this unwritten law is to be ruthlessly disregarded 
by the Carnegie Co., it will, of course, have a broader significance than the 
mere competition with our own products. 

Did you know that? 

Mr. Schwab. I never heard of it. 

The Chairman. Did not Mr. Converse, or any member of his 
company ever tell you, or tell the Carnegie Steel Co. that the 
construction of these tube works, as Mr. Gates has testified to, 
would be considered as a declaration of war? 

Mr. Schwab. He certainly never told me. 

The Chairman. Did you know or did anybody inform you that if 
those works were constructed gentlemen's agreements were going to 
smash, and, to use a crude expression, "Devil take the hindmost"? 

Mr. Schwab. I never heard of it. 

The Chairman (reading) : 

It is the intention of your officers to continue their efforts to strengthen our 
position at all important plants, increase our raw-material supply, to reduce the 
fixed charges thereat, and to combine to manage the affairs of this company 
conservatively and economically. 

Did you ever hear of that? 

Mr. Schwab. I know that Mr. Converse would naturally do that. 

Exhibit 4 

testimony of ANDREW CARNEGIE ^ 

Mr. Sterling. I want to ask you one or two other questions. 
In your opinion, could the United States Steel Co. have been or- 
ganized with any reasonable prospect or hope of being a very im- 

1 Hearings before the Committee on Investigation of United States Steel 
Corporation, 62nd Cong., 2nd Sess., 1911-1912, pp. 2377-82, 2438-39, 2445-46, 
2505-13- 



100 Industrial Combinations and Trusts 

portant factor in the manufacture of steel and iron in this country 
until they had bought the Carnegie Steel Co.? 

Mr. Carnegie. Judge, I do not want to flatter our old concern. I 
leave other people to judge about the Carnegie Steel Co. 

Mr. Sterling. I would like to have your opinion about it. 

Mr. Carnegie. That would be an interested opinion. I would be 
an interested witness on that. Excuse me from being compelled to 
praise our own organization. 

Mr. Sterling. I will ask you this question, then: 

Did you take into consideration, when you fixed a price on the 
Carnegie Steel property, the fact that this new organization, which 
evidently was seeking to take in all the iron and steel properties they 
could — did you take into consideration the fact, in fixing the price, 
that they could not get along without your property? 

Mr. Carnegie. Judge, I am delighted that you asked me that 
question. Listen. We considered $250,000,000 a fair price, and 
Messrs. Moore considered it a fair price, or they would not have 
paid $2,000,000 for the option, would they? I will ask you a 
question. 

Mr. Sterling. I would not think so. 

Mr. Carnegie. Thank you. 

After a time we were advised of the necessity for a broader char- 
ter than the limited manufacturing company gives in Pennsylvania, 
and we said, " We shall capitaHze it. Two hundred and fifty million 
dollars for the Carnegie Steel Co. would have given them a bar- 
gain. We will capitaHze it at the $250,000,000, and we will take the 
Frick Coke Co. all in, at $70,000,000, making $320,000,000." 

That is how we got the $320,000,000. 

Judging anything by to-day. Judge, considering what we put in 
for $320,000,000, if any man bought it for three times that amount 
he would be safe. 

Mr. Sterling. You did get more than that for it when you sold 
it to the United States Steel Corporation? 

Mr. Carnegie. Yes. Why? Mr. Schwab has stated that clearly. 

Mr. Sterling. Yes. 

Mr. Carnegie. And he has more to do with these things than any 
of us. He was in charge, and he is able and bright. 

Mr. Schwab came to me one day and said to me: 

Mr. Carnegie, Mr. Morgan spoke to me this morning, and as you and he have 
always been good friends and Morgan & Co. have always been your agents in 
banking, he said he did not hke to approach you on the subject, but he would 
like to know whether you are willing to retire from business. 



Formation of United States Steel Corporation ioi 

I said: 

Well, Schwab, that depends upon my partners. You know my scheme of 
life — that I have resolved that my old age is to be spent not in accumulating 
but in distributing surplus wealth, and I am ready to go any time; but it shall 
be as my partners say. 

He said the partners were ail willing. And he came back a few 
days afterwards and said that Mr. Morgan would like to know what 
terms I would take for my steel interests. And Mr. Schwab said 
to me: 

I think the option we gave — $250,000,000 and of course the Frick $70,000,000, 
making $320,000,000 — was a fair option. I think they would have made a 
great deal of money if they had taken it. It was cheap. 

Mr. Sterling What did you mean by saying, "Of course the 
Frick $70,000,000"? Do you mean the H. C. Frick Coke Co.? I 
want that for the sake of the record. I understood what you meant, 
but for the sake of the record, is that it? 

Mr. Carnegie. Yes. That made $320,000,000. 

And Mr. Schwab said, and he has testified since, that between the 
time that we gave the last option and this time he figured up ap- 
proximately that we had gained $100,000,000; that our properties 
and everything else were worth that; and therefore he thought it 
would be a fair option to give Morgan adding that to-day; and I 
agreed with him. 

Mr. Sterling. That would be $420,000,000? 

Mr. Carnegie. Yes; exactly. 

Mr. Sterling. But you sold it for more than $420,000,000? 

Mr. Carnegie. I did not, sir. 

Mr. Sterling. You did not? 

Mr. Carnegie. No, sir. I sold it and got two hundred and 
twenty millions of bonds. I did not get any common stock. 

The world is altogether mistaken about that. All that I asked 
Morgan was $420,000,000; and it was taken at that; and I owned 
just about half, and I got $213,000,000. 

All this talk about my holding for a high price and everything 
of that sort, gentlemen, has no more foundation than that you held 
for it. I considered what was fair; and that is the option that Mor- 
gan got. Schwab went down and arranged it. I never saw Morgan 
on the subject nor any man connected with him. Never a word 
passed between him and me. I gave my memorandum and Morgan 
saw it was eminently fair. I have been told many times since by 



102 Industrial Combinations and Trusts 

insiders that I should have asked $100,000,000 more and I could 
have gotten it easily. 

Once for all I want to put a stop to all this talk about Mr. Car- 
negie forcing high prices for anything. 

There is the truth, gentlemen. 

Mr. Sterling. It has been said in this hearing, Mr. Carnegie, and 
if it is true you can corroborate it, and if it is not, you ought to have 
the right to refute it, that the Carnegie Steel Co. got a great deal 
more than its property was w^orth, for the reason that that company 
knew or considered that its property was absolutely necessary to the 
United States Steel Corporation in order to make it a successful 
monopoly of the steel and iron business. 

Mr. Carnegie. Gentlemen, we had made up our plans and 
bought, I think, 5,000 acres of land at Conneaut, and we were go- 
ing to put up works there that would have revolutionized things, 
and that had no reference to Mr. Morgan, and mth no more idea 
that Mr. Morgan would have an option than that you would. We 
went on totally regardless of anything of that kind. Our plans 
were being made, and if we had not sold out we would have been a 
considerable concern by this time. That is quite true. 



Mr. Gardner. I understood you to say, Mr. Carnegie, that you 
and Mr. Schwab decided together that $420,000,000 was a fair val- 
uation for the Carnegie Steel Co.? 

Mr. Carnegie. Yes. Mr. Schwab had some statements. I can 
not give them to you now, but Mr. Schwab can give you the whole 
matter. He attended to those things. 

I never saw^ Morgan; I never saw any of his agents; never spoke 
to any other man about it except Schwab, and then just one or two 
sentences. Morgan would like to get my price. Schwab sat down 
and we talked it over, and I said: 

Yes; I am quite willing to sell at four hundred and twenty millions. 

And Mr. Schwab has stated here that it was approximately as he 
estimated the advance we had made between the two options. 

Mr. Gardner. I wanted to know whether $420,000,000 was the 
sum you set as the value of the Carnegie Co. 

Mr. Carnegie. To Mr. Morgan. 

Mr. Gardner. Did you mean $420,000,000 in cash or $420,000,- 
000 of the securities of the new company? 



Formation or United States Steel Corporation 103 

Mr. Carnegie. I was quite willing to take the 5 per cent bonds of 
the company. You know they are quoted at 115, and I took them 
at par. I do not regret doing so. 

Mr. Gardner. Are you aware that the United States Steel Cor- 
poration issued against the Carnegie Co. $492,000,000 worth of se- 
curities? 

Mr. Carnegie. I am not, sir. I never heard of it. 

Mr. Gardner. It is a fact. 

Mr. Carnegie. I have never heard of it. 

Mr. Gardner. To be accurate, $492,006,160 was the amount of 
securities of the United States Steel Corporation which were put 
out to purchase the Carnegie Co. 

Mr. Carnegie. Mr. Gardner, that is another surprise this morn- 
ing. I do not know what they did with it. This I assure you : I 
did not get more than two hundred and thirteen millions of bonds — 
not one cent more; nor was I a party to any arrangement 

Mr. Gardner. You took your payment entirely in bonds? 

Mr. Carnegie. I did. 



Mr. Gardner. I want to ask a practical question to clear my 
mind. Mr. Gates, in his evidence, stated Mr. Carnegie was going 
to build some tube works at Ashtabula. He meant Conneaut, did 
he not? 

Mr. Carnegie. Yes, sir. 

Mr. Gardner. He spoke about your purpose to build a railroad. 
Was there any such proposition, or was that a mistake of Mr. Gates? 

Mr. Carnegie. Therein Mr. Gates was quite correct. 

Mr. Gardner. Was it a railroad to be built from Pittsburgh to 
the sea? 

Mr. Carnegie. Yes; I told you yesterday that Mr. Vanderbilt 
sent for me 

Mr. Gardner (interposing). I mean in 1900? 

Mr. Carnegie. Yes. We had a survey. We were intending to 
build a railroad to the sea. 

Mr. Gardner: From Pittsburgh to the sea? 

Mr. Carnegie. Yes. 

Mr. Gardner. Mr. Gates said, ''And a railroad from Ashtabula 
to his works in the Pittsburgh district." 

Mr. Carnegie. Yes. From Conneaut. 

Mr. Gardner. He said Ashtabula. 



I04 Industrial Combinations and Trusts 

]Mr. Carnegie. It doesn't matter. 

Mr. Gardner. And that railroad was already built, was it not? 

IMr. Carnegie. Yes. 

Mr. Gardner. I just wanted to get the facts in my mind. 

Mr. Carnegie. Yes, sir. 

IMr. Gardner. And this railroad you thought of building was an- 
other proposition entirely, was it? 

i\Ir. Carnegie. Yes, sir; and let me tell you, Mr. Gardner, it was 
this threatening extension of railways, and especially to continue the 
Conneaut road to the coke ovens of the Pittsburgh district, that in- 
duced the president and the \dce president of the Pennsylvania 
Road to ask an inter\dew -^dth me. I detailed that to you yesterday. 

Mr. Gardner. That was a little earUer. I wanted to get at the 
truth or otherwise 

Mr. Carnegie (interrupting). That truth is quite true. 

Mr. Gardner. About the statement that about the time when the 
United States Steel Corporation was formed, it was your intention 
to build tube works at Conneaut and a railroad from Pittsburgh to 
the sea. 

'Mr. Carnegie. Yes, sir; and we bought ground for the purpose, as 
I told you. 

Mr. Gardner. I understand. 

Mr. C-AR.NEGIE. And also the plans Mr. Schwab was working on, 
and he informed me that he would break ground in April, and that 
in a year he would have those works running. 

Ish. Gardner. The contemporary e\'Ldence is much clearer on 
that than it is on the railroad proposition. Did you not take any 
further steps than having the surveys made for the railroad? 

Mr. Carnegie. No; the Pennsylvania road sent for me, as I told 
you 

Mr. Reed, Sr. (interposing). May I explain that? What Mr. 
Carnegie is talking about happened in 1896, when the Bessemer 
road was built. What you are talking about, Mr. Gardner, was in 
1900, or along about there. We had a sur\xy corps out running a 
line from Pittsburgh to connect \^ith the Western ^lar^dand Rail- 
road. Our idea v^'as to get to Baltimore -^ith a short hne. We had 
not done anything except start the surveying corps. We did not 
form any corporation or anything of that sort. 

Mr. Gardner. It was a matter seriously discussed? 

Mr. Reed, Sr. Yes, sir. 



Formation of United States Steel Corporation 105 

Mr. Beall. Now, about this railroad 

Mr. Carnegie. Which one? 

Mr. Beall. That one that was dreamed about about the time 
that the Steel Corporation was organized; that one that was to tap 
the Western Maryland, I believe, and reach to Baltimore. I have a 
little curiosity to know just what was contemplated in the construc- 
tion of that railroad; what kind of a road it was to be; what was its 
purpose; what was the ultimate end and object in view? 

Mr. Carnegie. The ultimate end was to give Pittsburgh competi- 
tion of railroads. She was under a vast, strong monopoly. 

Mr. Beall. That is, of the Pennsylvania Railroad? 

Mr. Carnegie. I told you this morning. 

Mr. Beall. Yes. 

Mr. Carnegie. I told you that this morning; how I had seen flour 
shipped through the streets of Pittsburgh to New York from Chi- 
cago cheaper than we could ship it from Pittsburgh to New York. 

Mr. Beall. Yes. This railroad was to reach deep water, tide- 
water? 

Mr. Carnegie. Certainly. 

Mr. Beall. At Baltimore? 

Mr. Carnegie. Yes; by a connection with one of the railroads — 
the Western Maryland, I think. 

Mr. Beall. And through the Chesapeake Bay out to the ocean? 
It was intended that that should be a competitor of the Pennsyl- 
vania Railroad? 

Mr. Carnegie. Certainly. That was the object. And the Balti- 
more & Ohio also. 

Mr, Beall. What would have been the mileage of that road? 
Could you give us an approximation of it? 

Mr. Carnegie. It would have to be a guess. Judge Reed, what 
would you say the distance was? 

Mr. Reed, Sr. May I answer, Mr. Chairman? 

The Chairman. Certainly. 

Mr. Reed, Sr. We would have had to build about 156 miles from 
the Union Railroad to a connection with the Western Maryland's 
extension at Cumberland. 

The same road has been built to-day by the Pittsburgh & Lake 
Erie over the line we surveyed, and will be opened in a couple of 
months. 

Mr. Beall. What system of roads does that now belong to — the 
New York Central? 



io6 Industrial Combinations and Trusts 

Mr. Reed, Sr. No, sir; it is being built by the Western Maryland 
and the Pittsburgh & Lake Erie, as I understand it. The Pitts- 
burgh & Lake Erie is a New York Central road. 

I do not know who owns the Western Maryland road exactly. 
It is owned around Baltimore, I think. 

Mr. Beall. That has proven to be a very profitable railroad? 

Mr. Reed, Sr. It has not been opened up as yet. It is to be 
opened up in about two months. It would have been a profitable 
road if we had built it. It is the shortest line to Baltimore from 
Pittsburgh. 



The Chairman. Until a few years or a very short period before 
the formation of the United States Steel Corporation there were, I 
believe, three large steel companies engaged in the m^anufacture of 
semifinished products — the National Steel Co., the Federal Steel 
Co., and the Carnegie Steel Co. All three of these companies, I 
believe, were holding companies, I believe. Is that correct. 

Mr. Carnegie. They were holding companies. 

Mr. Reed. Is that a question of Mr. Carnegie as to whether there 
were any other manufacturers of semifinished products? 

The Chairivian. No. 

Mr. Carnegie. Those three were? 

The Chair^ian. There were these three large holding companies, 
engaged in the manufacture of semifinished products? 

Mr. Carnegie. What do you call semifinished products? 

Mr. Reed, Sr. Billets. 

Mr. Carnegie. We did not sell billets. 

The Chairman. By that I mean the products of steel which were 
sold, which were marketable commodities in your hands, but which 
were raw materials to the concern which took them in that shape 
and manufactured them to a still higher degree. 

Mr. Carnegie. We sold billets. Judge Reed says; and skelp, and 
so on. I do not know to what extent. 

The Chairman. I will explain my meaning more fully, Mr. 
Carnegie. 

For instance, in the Carnegie Co. you had your blast furnaces? 

Mr. Carnegie. Yes. 

The Chairman. You sold pig iron, did you not? 

Mr. Carnegie. No. We used our pig iron. 

The Chairman. You did not sell pig iron at all? 



Formation of United States Steel Corporation 107 

Mr. Carnegie. No; I do not think we ever did. 

The Chairman. The pig iron or the hot metal, usually spoken of 
as pig iron, you conveyed in ladles to your furnaces? 

Mr. Carnegie. Yes. 

The Chairman. And from that iron you made steel? 

Mr. Carnegie. Yes. 

The Chairman. Did you sell steel billets? 

Mr. Carnegie. Yes; I think we sold steel billets. 

The Chairman. Those billets were purchased by tube companies 
or by companies making rails or by companies making any number 
of things and made into finished products, were they not? 

Mr. Carnegie. Yes; I think that was rather in the early days, 
was it not? 

The Chairman. Until a few years before the formation of the 
United States Steel Corporation. 

You did not sell steel ingots, for instance? 

Mr. Carnegie. No. 

The Chairman. You manufactured them immediately? 

Mr. Carnegie. Yes. 

The Chairman. You sold billets and you sold sheet and tin plate 
bars, did you not? 

Mr. Carnegie. It was such a small part of our business that I 
never went into that very much. 

The Chairman. Did you not sell millions of tons of billets to such 
companies as the Shelby Steel Tube Co.? 

Mr. Carnegie. We sold billets; but millions of tons? No; that 
is far beyond anything that I know of. I do not pretend to know 
what the amount was that we sold. But, in answer to your ques- 
tion, yes; we sold billets. 

The Chairman. Did not the concerns which afterwards formed 
the American Steel & Wire Co., until a few years before the forma- 
tion of the United States Steel Corporation, buy their raw mate- 
rial, as a rule, from the Federal Steel Co., the Carnegie Steel Co., or 
the National Steel Co.? 

Mr. Carnegie. I have no doubt they bought billets. I should 
think they would scarcely buy billets from us in Pittsburgh when 
they had the Chicago mills so near. 

The Chairman. These finishing mills, like the American Steel & 
Wire Co., the National Tube Co., the American Sheet & Tin Plate 
Co., the Shelby Steel Tube Co., and other like concerns, hundreds of 
others, nail mills, and the like, as a rule, bought their raw materials 



io8 Industrial Combinations and Trusts 

from these large companies making the semifinished products, and 
then carried them still further in the state of manufacture toward 
the highly finished product; is not that true? 

Mr. Carnegie. Quite so. 

The Chairal4n. You remember when the American Steel & Wire 
Co. was formed, do you not? 

Mr. Reed, Sr. Give the year. 

Mr. Reed. 1899, was it not? 

The Chairman. 1889, I beheve. 

Do you remember when the National Tube Co. was formed 
and when the American Sheet & Tin Plate Co. was formed, Mr. 
Carnegie? 

Mr. Carnegie. No. 

The Chairman. They were all formed between 1897, I beheve, 
and 1900. Is that right? 

Mr. Reed, Sr. Yes. 

The Chairman. I do not carry any figures in my mind. 

I see that Mr. Herbert Knox Smith, in his report on the steel in- 
dustry, makes this statement, after a resume and report of these 
various finishing concerns and their formation into large holding 
companies: 

Immediately, however, came the next step — 

That is, after the formation of the American Sheet & Tin Plate 
Co. and the American Steel & Wire Co., and the others — 

Immediately, however, came the next step. These great concerns almost 
simultaneously began the final linking up of the chain of production. Once 
begun by one concern, others followed in self-defense. The "secondary" com- 
panies began to reach back, acquiring ore reserves and crude steel plants. 
For example, in 1900, the Steel & Wire Co., whose supply of materials had pre- 
viously been purchased mainly from the Carnegie or the Federal Co., planned 
to make its own steel; likewise the National Tube Co. The "primary" con- 
cerns, finding these, their chief customers, turning into rivals, retaliated by 
reaching forward to the manufacture of finished products. 

Paramount in importance was the ore. The recognition of that importance 
came strangely late, but, once recognized, it became an axiom that no large 
concern could stay in the business unless fortified by its own ore reserves. By 
1900 the bulk of the Lake ore was in the hands of less than a dozen companies, 
with a similar concentration in coking coal. 

Such efforts on the part of these great concerns, in striving each to "integrate," 
to make itself wholly independent, threatened to result in a great and sudden 
increase and duphcation of the steel producing and finishing capacity of the 
country, and to involve them also in an invasion of each other's business. 



Formation of United States Steel Corporation 109 

Do you remember when that transition stage was occurring? 
Mr. Carnegie. I think that is remarkably well described. I 
think that gives you the situation. 
The Chairman. I think so. 
Again, quoting from page 18 of Mr. Smith's report: 

Thus there was suddenly revealed to the industry what the trade press at the 
time called "the impending struggle of the giants," a contest between great 
concerns who, under such circumstances, might be forced to work out in rig- 
orous competition the survival of the fittest. 

Such were the conditions in the steel industry in 1900. The spark that 
lighted the train was the threat of the Carnegie Co. to erect a great tube plant 
near Cleveland, thus invading the field of finished manufacture. 

I read that word " threat" because it is so written here. I do not 
mean to imply that. 

Mr. Carnegie. I quite understand, Mr. Chairman. 

The Chairman. I do not mean to imply that you made any 
threat. I would rather be inclined to believe that your determina- 
tion to build this great tube company would naturally cause some 
concern to your competitors. 

Mr. Carnegie. The National Tube Co. was one with which we 
had an agreement. They bought billets from us, and they made 
their tubes. They were at McKeesport. 

Mr. Reed, Sr. Their main plant was at McKeesport, and they 
had another at Riverside, near Wheeling. 

Mr. Gardner. There were some 10 tube plants of the National 
Tube Co.? 

Mr. Reed, Sr. They have about eight, I believe. 

Mr. Carnegie. May I confirm an impression from the Judge, be- 
cause he knows and I do not? 

The Chairman. Certainly. 

Mr. Carnegie. My impression is that the National Tube Co. 
had been reorganized and put upon the market, had it not, by 
Mr. Moore? 

Mr. Reed, Sr. The National Tube Co. has nothing to do with 
Mr. Moore. 

Mr. Carnegie. But there were others. What had the National 
Tube Co. to do with it? 

Mr. Reed, Sr. Will the committee permit me to state? 

Mr. Carnegie. I do not know how these steel mills were situated, 
as to the details. 

Mr. Reed. The National Tube Co. was independent. It was not 



no Industrial Combinations and Trusts 

affiliated vvith any concern. The National Steel Co. was Judge 
Moore's concern, that supplied the raw material for the sheet and 
tin plate and steel hoof business. 

Mr. Gardner. The National Tube Co. was regarded as one of the 
Morgan group, was it not? 

Mr. Reed. Yes. 

Mr. Gardner. The National Steel Co. was regarded as one of the 
Moore group? 

Mr. Carnegie. Why was it regarded as one of the Morgan group 
— the National Tube Co.? 

Mr. Reed, Sr. It has been reorganized and financed through 
Mr. Morgan's office. 

Mr. Carnegie. Now we are getting at it. I remember. I was 
afraid to state it until it was confirmed. The National Steel Tube 
Co. 

The Chairman. I do not want to interrupt you, Mr. Carnegie, 
but I think you can answer two questions at once, because I shall 
refresh your memory still further, so that you can tell me about the 
whole transaction. 

Mr. Carnegie. I shall be delighted, Mr. Chairman. 

The Chairman. I asked Mr. Schwab about it. 

Mr. Carnegie. What do you want to ask me about it for, if you 
asked Schwab? [Laughter.] Let me see what Schwab said, and 
I will know what was done. It will refresh my memory at once. 

The Chairman. All right. He did not remember it until I called 
it to his attention, and then he said he did remember it. 

I read now from the minutes of the National Tube Co., from Jan- 
uary 15, 1 90 1, to date, containing all minutes of the said company: 

Mr. Converse said that there were rumors that the Carnegie Co. is about to 
install and operate a tube works, with a capacity of 280,000 tons per annum. 

Mr. Carnegie. That is from the minutes? 

The Chairman. Yes. This is from the minutes of the National 
Tube Co., and shows what they were thinking about what you were 
doing: 

Mr. Converse said that there were rumors that the Carnegie Co. is about to 
install and operate a tube works, with a capacity of 280,000 tons per annum. 

During the 18 months this corporation has run there has never been a time 
when they could not have manufactured to advantage and profit material in 
competition with nearly all of the numerous industrial groups, including the 
Carnegie Co., but the pohcy of the management so far has been that, except 
forced by self-protection, this company would not displace a ton of its neigh- 



Formation of United States Steel Corporation hi 

bor's product by entering any other lines than strict tubular works. It has 
rigidly confined itself to this principle up to this time. The Carnegie Co. is now 
enjoying trade in plates on ships at the rate of about 150,000 tons per annum 
with the National Transit Co., a department of the Standard Oil Co. 

This is more than equal to any tonnage which the Carnegie Co. has ever 
made for tubular purposes. From this it will be seen that the Carnegie Co. 
interests have been protected through the care and friendliness of the Standard 
Oil and national ^ companies, and under the full behef , warranted by the facts, 
statements, and circumstances, that such an arrangement would fully satisfy the 
Carnegie Co. in their ample demand for their full measure of steel tonnage for 
conversion into tubular products. In all of the arrangements between the Na- 
tional Steel, Repubhc, American Sheet Steel & Plate, and others of the indus- 
trial steel groups it has been the unwritten law that each group should confine 
itself to the fabrication of its own specialties and should voluntarily refrain 
from using constant surplus of material by the production of the special product 
of its neighbors. If this unwritten law is to be ruthlessly disregarded by the 
Carnegie Co., it will, of course, have a broader significance than the mere com- 
petition with our own products. 

Mr. Reed, Sr. What did Mr. Schwab say to that? 

The Chairman. I asked him, "Did you know that?" and he re- 
plied, "I never heard of it." Mr. Schwab said he knew nothing 
about it. 

I am asking you, Mr. Carnegie, if you remember at that time 
this protest of the tube company against your constructing that 
mill at Conneaut? 

Mr. Carnegie. I never heard a word of it. If Schwab tells you 
that he was ignorant of it, I can not account for its being in circu- 
lation. 

The Chairman. That was on the minutes of this tube company. 
That is what they did think about it. Why was it, do you know, 
that they were protesting so vigorously against your constructing 
those tube works? Could they not make tubes just as cheap as you 
could with that mill? 

Mr. Carnegie. You must ask somebody else than me, Mr. Chair- 
man. I can not conceive of it. All of this is new to me. I never 
heard of it before. 

The broad way that I understood the thing wg.s this: We fur- 
nished tubes for the National Tube Co. and they finished them; 
but they resolved to erect blast furnaces. This is the story as I 
remember it: They went on to erect their blast furnaces. Then, 
of course, they were able to make their own material, billets, etc. 
That is how they left us. 

^Thus in original. — Ed. 



112 Industrial Combinations and Trusts 

The Chairman. You say, "That is how they left us." You mean 
they left you without a customer? 

Mr. Carnegie. Yes. They were not satisfied with manufactur- 
ing the bilelts^ into tubes. They wanted to make the w^hole thing 
through. 

The Chairman. I see. 

Mr. Carnegie. We had been looking for a site where we could put 
additional works, where we could extend; and it did not require 
much consideration to let us see that if we, having that Conneaut 
Harbor, put a modern steel plant there, the ore would come there 
and be dumped from the boat right in the furnace yard. And 
Mr. Schwab drew plans. The mill was i,ioo feet long, and the ore 
stood there, and the coke was brought up from our own mines in 
the cars which had taken the ore down to our mills, and which 
would otherwise have returned empty; and there we stood, with the 
raw material there, and the finished tubes would come out here 
[indicating], with all new, modern machinery, no men hardly, all 
rolls conveying the masses without hand labor, and all that. 

Mr. Schwab showed me that plan, just as he did the plan for 
the great plant for the open-hearth furnaces at Homestead, and I 
said: "Schwab, what difference can you make?" And he said, 
"Mr. Carnegie, not less than $io a ton." 

Of course, you must remember that the tube works were very 
old, and had been running for a long while, and this project of our ^ 
was a total departure. So he said: "A difference of $io a ton." 

When the National Tube Co. left us and began to build furnaces 
for themselves, then we decided that w^e would build at Conneaut. 

That was one reason. That was not the whole reason. I had a 
great desire to get into the manufacture of steel cars, because I saw 
that they were bound to supersede wooden cars, just as I saw that 
iron bridges were bound to succeed wooden bridges. 

That was the situation. That is all I know of our relations to the 
National Tube Co. 

The Chairman. You were in a position to make them for $io a 
ton less than your competitors? 

Mr. Carnegie. Yes. And I have talked to Schwab since about 
it, and he said: "Yes. I could have fulfilled my estimate there 
easily." 

The Chairman. I find here in this report of Herbert Knox Smith: 
"Mr. Carnegie's personal view of the situation." 
1 Thus in original. — Ed. 



Formation of United States Steel Corporation 113 

That is the tube situation. 

Mr. Carnegie's personal view of the situation may be authoritatively stated as 
follows: 

The National Tube Co. formerly obtained its steel billets from the Carnegie 
Co., but decided to erect blast furnaces and mills to supply itself. Naturally, 
the Carnegie Co. then announced that it would be forced to erect mills to finish 
its own products into tubes. 

The intention of the Carnegie interests to extend their manufacture of 
finished lines had, indeed, been contemplated for some time. In an interview 
in the London Iron and Steel Trades Review, of May 12, 1899, Mr. Carnegie 
was quoted as saying: 

This is from the New York Evening Post, January 21, 1901. 

Yes, we have been erecting several new departments, including what I 
beheve will be the largest axle factory in the world. Why, it may be asked, 
should steel makers make plates for other firms to work up into boilers when 
they can manufacture the boilers themselves; or beams and girders for bridges 
when they can turn out and build up the completed article; or plates for pipes 
when they can make the pipes? 

I think the next step to be taken by steel makers will be to furnish finished 
articles ready for use. In the future the most successful firms will be those 
that go the furthest in this direction. 

Mr. Carnegie. That prophecy has come true. 

Mr. Gardner. I want to ask Mr. Carnegie a question, if I may, 
Mr. Chairman. 

The Chairman. Certainly. 

Mr. Gardner. In this Conneaut plant you proposed to smelt the 
iron and carry it through? 

Mr. Carnegie. Oh, yes; we proposed to have great blast furnaces 
of the most approved style. 

Mr. Gardner. You were going to take the iron ore right off the 
Lakes and turn it into tubes and material for steel cars? 

Mr. Carnegie. And listen: We had to take ore down to Pitts- 
burgh — 150 miles. 

Mr. Gardner. Yes. 

Mr. Carnegie. The ore would be there at Conneaut, coming right 
off the Lakes. The cars would be coming back empty from Pitts- 
burgh, and there are our coke works, and we would load our coke 
into those empty cars and take that fuel to Conneaut, and the dif- 
ference between the cost of hauling that coke to Conneaut and haul- 
ing the empty cars back would be only a cent or two per ton; the 
difference between a loaded train of ore going down and an empty 
train of cars coming back for train service is only i cent. It costs 1 1 
cents for train service coming down and 12 cents for the loaded 



114 Industrial Combinations and Trusts 

cars going up. We would have had that tremendous advantage 
there. I wonder that the steel company, instead of going to Gary — 
this is my private opinion, not to be publicly spread; this is confi- 
dential [laughter] — I wonder that instead of going to Gary they did 
not do what we proposed. If they had spent half the money at 
Conneaut, according to our plans, instead of spending double at 
Gary, the steel stock would have been worth more than it is to-day. 
[Laughter.] 

Mr. Gardner. Let me understand what you just said about train 
service. 

Under the old system it cost you 12 cents for hauling the ore — 
just for the car service? 

Mr. Carnegie. For the train service — the locomotive, engineer, 
and so on. 

Mr. Gardner. The actual cost of running the train, without re- 
spect to the cost of the roadbed or interest on your money, and all 
that, but just the train service? 

Mr. Carnegie. Yes. 

Mr. Gardner. It cost you 1 2 cents a ton from Conneaut to Pitts- 
burgh, and 1 1 cents a ton to haul back the empty cars? 

Mr. Carnegie. No 

Mr. Reed, Sr. This was all prophetic. 

Mr. Carnegie. They were all loaded cars. 

Mr. Gardner. In your proposition; yes. But before you thought 
of Conneaut, then you had to haul your ore down from Lake 
Superior to Pittsburgh at a train-service cost of 12 cents a ton? 

Mr. Carnegie. That is what I was told. 

Mr. Reed. From Lake Erie to Pittsburgh? 

Mr. Gardner. From Lake Erie to Pittsburgh ; yes, I should say. 
And hauling back the empty cars cost you 11 cents a ton over the 
same route? 

Mr. Carnegie. Yes. 

Mr. Gardner. If you built your plant at Conneaut, it meant this: 
That your ore would be landed at Conneaut and would be con- 
verted into steel at Conneaut, instead of going all the way down 
to Pittsburgh. Meanwhile, you would be getting your coke from 
an intermediate point, to wit, Lorain? 

Mr. Reed. No; from Connellsville. 

Mr. Carnegie. From our own coke ovens; from the Frick Coke 
Co. 

Mr. Gardner. From the H. C. Frick Coke Co. at Pittsburgh? 



Formation or United States Steel Corporation 115 

Mr. Reed. Connellsville. 

Mr. Carnegie. At Connellsville, which is in the Pittsburgh re- 
gion. 

Mr. Gardner. You would be getting your coke in trains which in 
their northward trip would be full, and on their southbound trip 
would be empty? 

Mr. Carnegie. Let me explain. 

We had a great m.any blast furnaces at Pittsburgh, to which we 
had to take ore, you understand? 

Mr. Gardner. I see. So that you would have a full trip for the 
cars both ways? 

Mr. Carnegie. Yes. We balanced the coke and the ore. 

Mr. Gardner. I see the idea. You would haul your coke north to 
Conneaut, and you would haul your ore for your blast furnaces to 
Pittsburgh? 

Mr. Carnegie. Yes ; and therefore the coke for Conneaut would 
cost us nothing, practically, for hauling. 

Mr. Gardner. I get the idea exactly. The transportation of it 
was so much clear gain, because you had to pay 11 cents, anyway, 
for those cars to return. Is that the idea? 

Mr. Carnegie. Yes. And therefore we saved so much. We got 
our coke delivered at Conneaut for 11 cents, and Yve got our ore 
delivered at Conneaut a great deal cheaper than at Pittsburgh. 

Mr. Gardner. I see. You had a full trainload coming back, in- 
stead of having an empty train coming back, for which you would 
have had to pay 11 cents, anyway? 

Mr. Carnegie. My dear sir, the railroad had to be maintained, 
whether the cars were going up empty or not. Do you get that 
point, Mr. Chairman? 

The Chairman. All of them, and then some. 

Mr. Gardner. I think I understand that; but I do not think you 
understand my question that I asked you a while ago. I think your 
counsel will explain. 

The Chairman. As I understand, your road had to be maintained? 

Mr. Carnegie. Certainly. 

The Chairman. The same number of cars had to be run? 

Mr. Carnegie. Certainly. 

The Chairman. You had in each train a certain number of empty 
cars, and the only real additional cost, then, was the train service for 
moving these empty cars along with the other cars that carried ordi- 
nary freight. Is that it? 



ii6 Industrial Combinations and Trusts 

Mr. Carnegie. It was all clear profit. The railroad expenditures, 
the interest, the deterioration of the railroad, and all that was the 
same. But if you hauled an empty train north to Conneaut it cost 
you for service ii cents, because the locomotives used a Httle less 
fuel hauling empty cars down than it did hauling loaded cars up. 

The Chairman. I see. At that point, realizing these great advan- 
tages, you did not talk about that? That was not generally known, 
was it? 

Mr. Carnegie. We did not publish it in the newspapers. 
[Laughter.] 

The Chairman. It was not possible that Mr. Morgan or any of 
these people who owned the steel corporation ever knew that you 
had these big advantages, and that you had already got a site for 
that plant, was it? 

Mr. Carnegie. I would not say what they knew. 

The Chairman. Was anything ever said about this great steel 
plant that you were going to build and the tremendous advantages 
you had? 

Mr. Carnegie. We bought the land, and that was known. 

The Chairman. And you knew what you were going to do? 

Mr. Carnegie. Yes; indeed we did. [Laughter.] 

The Chairman. There has been some intimation that, even with 
your sanguine temperament, and your long experience, that the 
Carnegie works, like Napoleon at Waterloo, were face to face with 
a combination so extensive, manned by men so experienced, and sus- 
tained by resources so tremendous, with Judge Gary, for instance, 
in the Federal Steel Co., with Mr. Gates in the Steel & Wire Co., and 
with Mr. Morgan as godfather and titular head, that with their 
organization outside of the Carnegie Co. possessed sufl&cient power 
to have made it no longer interesting for you to have continued in 
the steel business; and that perhaps you escaped destructive compe- 
tition by retiring from the field. 

Was it possible for the Carnegie Co. to have met these combined 
forces? 

Mr. Carnegie. Nonsense. [Laughter.] Why did Morgan send 
word to me that he would like to buy me out? 

The Chairman. I understand that he was uneasy about the con- 
dition of your health, and gave that as a reason. 

Mr. Carnegie. I was still able to take sustenance. [Laughter.] 

Mr. Bartlett. And you were able to take notice, too, I think. 

Mr. Carnegie. There is a different story than that. But do not 



Formation of United States Steel Corporation 117 

let us go into that. That is a good joke. Ask Schwab about 
that. 

Mr. Young. One gentleman expressed it in this way: He said 
that these gentlemen who organized the Steel Corporation were 
about to make a very fine plum pudding, and that they ascertained 
that Mr. Carnegie had all the plums. [Laughter.] 

Mr. Carnegie. Gentlemen, it is a great pity that they ap- 
proached me and asked if I would retire from business. 

I had formed my career, and laid down the law to myself that 
I would not spend my old age in accumulating more dollars. I 
showed that when we got the offer of $320,000,000 for our prop- 
erty, and when Mr. Schwab came and sat down and showed me 
what he thought I could get, I said: ''Schwab, it is just as my part- 
ners say. That is entirely satisfactory to me. It is all the money I 
ever want to make." 

I did not reahze then so fully that it takes a great deal more 
anxious thought and labor to distribute money wisely than it ever 
did to me to make it. 

I do not Hke to be called a philanthropist. That means a man, 
usually, with more money than brains. 

You can do more harm distributing money unwisely, and do more 
to pauperize people than you can do good, almost, in trying to 
assist them. 



CHAPTER VII 

FACTORS' AGREEMENTS 
NOTE 

The general aim and purpose of factors' agreements is too well 
known to require any extended consideration by the editor. They 
may like pools be established "^ith a variety of purposes in view. 
Primarily their object is to fix prices. But they may be readily 
used to suppress competition by requiring that the factor shall not 
deal in the goods of a competitor. Other objects may come Tvithin 
the scope of the agreement as is shown by the exhibits following. 

The Dr. ]\Iiles Medical Company decision, excerpts of which 
have been made a part of this chapter, dealt a severe blow to the 
factors' agreement. Plereafter it Yvill probably prove a somewhat 
emasculated de\dce for the furtherance of combination and consoli- 
dation, and the limitation of competition. — Ed. 

Exhibit i 
table and stair oil cloth association^ 

This agreement made this day of one thousand 

eight hundred and eighty-seven, between of the city of 

State of , party of the first part, and the Table 

and Stair Oil-cloth Association, party of the second part, witnesseth: 

First. That the party of the first part \^ill, during the contin- 
uance of this agreement, on or before the tenth day of each cal- 
endar month, and beginning on the loth day of July, 1887, make 
and render to the commissioner of the party of the second part an 

accurate statement of all goods of o-^m manufacture, of the 

character specified in schedules "A and B", hereto annexed, sold 
and shipped by the party of the first part during the preceding 
month, which statement shall contain the names of the persons to 

^ Report of the Senate Committee on General Laws on Investigation relative 
to Trusts, N. Y. Senate Document, No. 50, 1888, pp. 609-617. 

118 



Factors' Agreements 119 

whom the sales were made, and the amount of each kind of goods 
sold to each purchaser; such statement shall be verified by the 

oath or afl&rmation of the party of the first part, and some 

employe of having knowledge of the facts, and there shall 

be incorporated in such verification a statement that the party of 
the first part has not made any sales at lower prices or on better 
terms than those permitted by this agreement. Such statement 
and verification shall be made on blank forms to be furnished by 
the party of the second part, and shall conform to the require- 
ments ot 1 such blanks. 

Second. That on or before the fifteenth day of June in each 
year, the party of the first part will pay to the party of the second 

part twenty-five cents for each and every piece of goods of 

own manufacture, except goods specified in schedule "C", hereto 

annexed, sold by. during the preceding six calendar months, 

and on the fifteenth day of December in each year twenty-five 
cents for each and every piece of goods of own manufac- 
ture, except goods specified in said schedule " C", sold by dur- 
ing the preceding six calendar months. But it is expressly under-* 
stood and agreed between the parties hereto that if any dividend 
or debt duly audited shall be payable from the party of the second 
part to the party of the first part, the amount thereof shall be off- 
set against the payment above provided for and that, if after such 
offset, there shall be a difference in favor of one party as against the 
other, only such difference shall be paid in cash. For the purposes 
of this section, forty-eight yards in length of shelf oil-cloth, and 
thirty-six yards in length of stair oil-cloth, and twelve yards in 
length of table oil-cloth shall constitute a piece. 

Third. The party of the first part further agrees that will 

keep full, true and accurate books of account of all goods of the 
character specified in said schedules "A", "B", and "C", and of all 

such goods sold and delivered by during the continuance of 

this agreement, including the prices and terms of such sales, and 

that will at all times permit the commissioner of the party 

of the second part, to have access to such accounts and to all mer- 
cantile books and papers, relating to this business of the party of 
the first part, for the purpose of comparing such books and papers 
with the reports or statements made by the party of the first part to 
said commissioner, or for the purpose of discovering whether the 
party of the first part has violated or evaded any of the covenants, 
1 Thus in original. — Ed. 



I20 Industrial Combinations and Trusts 

terms or conditions hereinbefore or hereinafter contained, and 

that will allow such commissioner to make extracts from such 

books and papers for the purpose above specified. And the party 

of the first part further agrees that \^dll at any time, when 

so requested give such commissioner full and accurate information 

relating to the sale of goods, and that will permit and 

direct employes to give said commissioner every assistance 

and information in any examination instituted by the said com- 
missioner for the foregoing purpose, and that and 

.... employes will answer under oath, if said commissioner so re- 
quests, any questions put to and regarding 

any alleged violation of this agreement or any similar agreement 
which the party of the second part may have with other parties. 

Fourth. The party of the first part further agrees that. . . .will 
not during the continuance of this agreement sell any goods of the 
kinds specified in schedules ''A", "B" and "C", hereto annexed 
at lower prices than may from time to time be fixed by the party 
of the second part. 

• For the present those prices are fixed in accordance with schedules 
"A", "B" and "C", but such prices may from time to time be 
changed by the party of the second part, and the party of the first 
part agrees that on receiving notice personally or by mail or tele- 
gram of such changes wdll forth^^dth advance prices to conform to 
any advance made by such changes. 

Fifth. But it is understood that the party of the first part shall 
be at liberty to promise the following rebates to be paid at the time 
and in the manner hereinafter provided: 

To purchasers buying in any one season from members of the 
Table and Stair Oil Cloth Association, 250 pieces or over of table 
oil-cloth, a rebate of fifteen per cent. 

To those buying in any one season 500 pieces or over of table oil 
cloth a rebate of seventeen and one-half per cent. 

To those buying in any one season 100 pieces or over of shelf 
goods of twelve yards each, a rebate of fifteen per cent. 

To those buying in any one season 250 pieces or over of shelf 
goods of twelve yards each, a rebate of seventeen and one-half per 
cent. 

To those bu3dng in any one season twenty-five pieces of stair oil- 
cloth, a rebate of ten per cent. 

To those buying in any one season fifty pieces of stair oil-cloth, a 
rebate of fifteen per cent. 



Factors' Agreements 121 

To those buying in any one season 100 pieces of stair oil-cloth, a 
rebate of seventeen and one-half per cent. 

But it is understaodi that pieces of stair oil-cloth shall not average 
less than sixty yards to the piece. 

Sixth. That no allowance to any purchaser for damaged goods or 
for goods returned or for any other reason shall be made except, by 
the consent of the commissioner of the party of the second part. 

Seventh, But it is expressly agreed by the party of the first part 
that. . . .will not promise such rebate to any purchaser who does not 
expressly agree that .... will not sell any goods of the character 
specified in Schedule ''A", whether manufactured by the members 
of the party of the second part or others, at lower prices or on better 
terms than those fixed by said schedules as the same now stands or 
as they may hereafter be amended; and upon the express condition 
that such rebate shall only be paid in case the purchaser has main- 
tained such prices and terms, and upon the further condition that 
the commissioner of the party of the second part shall have the sole 
power to determine whether such purchaser has violated such agree- 
ment. 

Eighth, And the party of the first part further agrees that if any 
purchaser of the goods named in Schedules "A" '^B" and "C" 
shall sell such goods at less prices and on better terms than those 
from time to time prescribed by the party of the second part, or 
shall supply goods to any one selling below such prices and terms 
after receiving notice from the said commissioner requesting him not 
to supply such persons with goods, the party of the first part will 
immediately on receiving notice that such purchaser has sold goods 
at less than the prices and terms fixed by the association, or has 
supplied goods to others not maintaining the prices, and terms fixed 
by this association, cease seUing goods to such purchaser, and will 
cancel any unfilled orders given by such purchaser. 

Ninth. And the party of the first part further agrees that in case 
.... shall be notified by the commissioner of the party of the second 
part that any purchaser has violated such agreement,. . . .will not, 
directly or indirectly, pay such purchaser the rebate to which he 
would otherwise be entitled; and that after the receipt from said 
commissioner of such notification, .... will not sell such purchaser 
any goods at lower prices than full list prices, cash on delivery, 

without discount; and that will not thereafter offer, or promise, 

or pay such purchaser any rebate whatever on goods bought by him, 
1 Thus in original. — Ed. 



122 Industrial Combinations and Trusts 

except by the written consent of the party of the second part. 

The rebates above provided for shall not be paid until the end of 
the season. 

Tenth. At the end of each season, and vrithin one week there- 
after, the party of the first part shall report to the commissioner of 
the party of the second part the amount of each kind of goods sold 
during the season to each purchaser. If the said commissioner 
shall be satisfied that the purchaser has not violated his agreement 
to maintain the price and terms fij?:ed by the party of the second 
part, and has purchased sufficient to entitle him to a rebate, the 
said commissioner shall send to such purchaser a sight draft upon 
the party of the first part, for the amount of the rebate due from the 
party of the first part, and the said commissioner shall, at the same 
time, notify the party of the first part of the fact that he has drawn 
and sent such draft. 

Eleventh. But it is further understood between the parties hereto 
that goods may be sold to purchasers transacting business outside 
of the United States, at the prices and terms, and on the conditions 
prescribed in schedule "B", hereto annexed; but such prices, terms 
and conditions may from time to time be altered by the party of the 
second part; and the party of the first part agrees that on receiving 

notice of such changes from the party of the second part will 

immediately change the prices, terms and conditions of such sales, 
in conformity with such alterations. 

Twelfth. It is further understood that the party of the first part 
shall be at liberty to sell goods specified in Schedule ''A", to any 
member of the Table and Stair Oil-Cloth Association at a discount 
of 17-/^ per cent from the prices named in Schedule "A" in what- 
ever quantity such goods may be sold. 

Thirteenth. The party of the first part hereby further agrees 

that will not except by consent of the party of the second 

part, coat, finish, or print any goods of the character specified in 
Schedules "A", "B" and "C" for any party (except members of the 
Table and Stair Oil-Cloth Association) who contributes either by 
purchase or any other way any portion of the materials used in 
such goods. 

Fourteenth. The party of the first part further agrees that 

. . . .vn]l not sell goods specified in Schedule "A" on better terms 
of credit than skty days from date of invoice, with an allowance of 
two per cent for cash within thirty days of date of invoice, and four 
per cent for cash paid within ten days of date of invoice, and an 



Factors' Agreements 123 

additional allowance at the rate of one per cent per month for pay- 
ments made prior to the day on which invoices may be dated; and 

the party of the first part further agrees that will in no case 

allow the above discounts except for cash actually paid or remitted 
on or before the expiration of the periods above named. 

Fifteenth. It is further agreed that such cash discounts shall only 
be allowed on invoices of goods actually shipped, and not on money 
paid in advance or anticipation of shipments, and that all invoices 
of goods shipped between August first and December first, and 
between February first and June first of any year shall date from 
the day of shipment, and the invoices of goods shipped between 
June first and August first shall not date later than August first, 
and all goods shipped between December first and February first 
shall not date later than February first. 

Sixteenth. And the party of the first part further agrees that .... 
. . . .will not sell goods of the kinds specified in Schedule " C" hereto 
annexed on any other terms than those prescribed in said Schedule 
*'C", but such terms and conditions may from time to time be al- 
tered by the party of the second part, and the party of the first part 
agrees that on receiving notice of such alterations from the party 
of the second part will immediately change terms and con- 
ditions of such sales in conformity with such alterations. 

Seventeenth. That neither the party of the first part nor any 

agent, agents, emploj^e or employes of will pay any freight 

to any purchaser or to any dealer or to any agent of except 

that the party of the first part may pay freight to New York, Phila- 
delphia, Baltimore and Newark, and expressage or freight on pack- 
ages delivered in Brooklyn, WilHamsburg and Jersey City, but that 
goods mentioned in schedule *'C" may be delivered freight paid in 
Boston, Mass. 

Eighteenth. That the party of the first part will not directly or 
indirectly offer or give to any purchaser or the employe or agent of 
any purchaser or to any one whomsoever, any gift, bribe or pecu- 
niary advantage (outside of the intrinsic value of.- goods) for 

the purpose of obtaining orders for or effecting sales of goods. 

Nineteenth. That the party of the first part will not carry any 
stock of goods in any place or places other than New York, Phila- 
delphi,^ Newark, Montrose, N. Y., Astoria and Plainfield. 

Twentieth, That the party of the first party will take no orders 
between November 30, and May 31, in any year except upon the 
* Thus in original. — Ed. 



124 Industrial Combinations and Trusts 

distinct agreement with the purchaser that any unfilled portion of 
the order shall be cancelled on the thirty-first of May, and that .... 
will take no orders between May 31, and November 30, in any year, 
except upon a similar agreement that any unfilled portion of the 
order shall be cancelled on the thirtieth day of November. 

Twenty-first. For the purpose of this agreement a year is divided 
into two seasons, one extending from May 31 to and including 
November 30, and the other from November 30, to and including 
May 31. 

Twenty-second. And the party of the first part expressly agrees 
that. . . .will not in any season make any contract or agreement for 
the future dehvery or sale of goods extending beyond such season, 

nor will quote or name prices for goods to be sold or dehvered 

after the current season except by consent of the party of the second 
part. 

Twenty-third. The party of the first part further agrees that .... 
will make no guaranty as to any matter whatsoever except the 
quantity and quality of goods sold by 

Twenty-fourth. That the party of the first part will not show sam- 
ples of new styles of goods and will not solicit or take orders or ship 
new styles of goods for the season between June first and December 
first, prior to June first in any year, or for the season between 
December first and June first before December first, and that all 
original sample books shall be of the uniform size of nine inches by 
twelve inches, and that all sample books sent to the trade shall be 
cut of the uniform size of seven inches by nine inches and that the 
party of the first part will supply sample books of no other size 
whether paid for or not. 

Twenty-fifth. That the party of the first part will require all 

salesmen and agents in employ to sign and swear to a written 

promise binding them to maintain the prices and terms fijced by the 
party of the second part; that they will answer under oath any ques- 
tions that may be put to them by the commissioner of the party of 
the second part, in any examinations that may be instituted to 
him for the purpose of ascertaining whether this agreement or any 
similar agreement has been violated; that they will divide no com- 
mission with purchasers, and that they will neither offer or ^ pay 
any money, gift, bribe, or other valuable inducement in order to ob- 
tain an order for or effect a sale of goods, and the party of the first 
part agrees that on being informed by said commissioner that any 
1 Thus in original. — Ed. 



Factors' Agreements 125 

salesman or agent has violated such promise .... will immediately 

discharge him from employ, and that will not 

knowingly employ any salesman or agent who has been discharged 
from the employ of any other manufacturer of, or dealer in table, 
stair and shelf oil-cloths for such an offence. 

Twenty-sixth. And the party of the first part further agrees that 

will employ no person or persons as agent or salesman who 

is interested in or connected with any concern engaged in the pur- 
chase and sale of oil-cloths, and that will employ no agent in 

the place where own store or factory is located, and that. . . . 

will not pay any agent a higher commission than three per cent on 
goods sold at the agent's place of business or residence, and not more 
than five per cent on goods sold elsewhere, such commission to cover 
all travelling and other expenses. 

Twenty-seventh. That on or before the first day of June, 1887, 
the party of the first part will deposit with the party of the second 
part the sum of $ in cash or convertible securities satis- 
factory to the party of the second part, to be held by the party of 
the second part as security that the party of the first part will 
promptly pay to the party of the second part any sum or sums of 

money which may at any time become due or payable from to 

the party of the second part under any of the provisions of this 
agreement. 

Twenty-eighth. That if any such payment shall become due and 
remain unpaid for the period of one week, it shall be lawful for the 
party of the second part to take the amount thereof from any funds 
in its hands belonging to the party of the first part, or if such funds 
are insufficient, to sell at pubhc or private sale, without demand of 
payment and without notice of the time and place of such sale, 
sufficient of the securities deposited with it by the party of the first 
part, and out of the proceeds of such sale to take and retain the 
amount of such payments, and it shall be the privilege of the party 
of the second part to be the purchaser at any such sale. 

Twenty-ninth. That the party of the first part will, at the demand 
of the party of the second part, make good any deficiency which 
may arise in the cash or securities so deposited, whether such defi- 
ciency be caused by depreciation in market value or by deduction 
made in accordance with the preceding provisions. 

Thirtieth. That if, at any time, the party of the first part, ...... 

shall refuse to give the commissioner of the party of the second 
part access to mercantile books, accounts, or papers, or 



126 Industrial Combinations and Trusts 

shall refuse to permit the examination of employes, 

or shall refuse, when requested, to give accurate and full informa- 
tion touching any matter relating to the sale or delivery of 

goods, in any case where the said commissioner is authorized by 
this agreement to request such examination and information; or 
shall wilfully make and render to the party of the second part, or 
its commissioner, any false statement as to the amounts and kinds 
of goods sold and delivered by ; the name of the pur- 
chaser to whom sales or deliveries were made or as to the prices, 

terms and conditions of sales, or shall wilfully, directly or 

indirectly perform any acts tending to nullify or evade this agree- 
ment, or any of its terms, the party of the first part will, on con- 
viction thereof, in the manner prescribed by the by-laws of the 
party of the second part, forfeit and pay to the party of the second 
part, for each and every offence, the sum of $500, which sum is here- 
by fixed by the parties hereto as Hquidated damages, and in case 

the party of the first part shall either or through 

employes directly or indirectly fail to maintain the prices, charges, 
terms and conditions required by this agreement, shall pay to the 
party of the second part $500, as liquidated damages for each and 
every offense, and in case the party of the first part shall sell to any 
one purchaser during any one season more than 500 pieces at lower 
prices, or on better terms than those permitted by this agreement, 
the party of the first part shall in addition pay to the party of the 
second part one dollar for each and every piece in excess of 500 so 
sold, which sums are hereby fixed by the parties hereto as liqui- 
dated damages, and the sum of $100 as liquidated damages for any 
failure to make the statement or reports required by this agreement 
within the time limited therefor. 

Thirty-first. In consideration whereof, the party of the second 
part agrees to sell the party of the first part, at par, certif- 
icates of memberships, such certificates, however, to be always held 
subject to the conditions imposed by the by-laws of the party of 
the second part, and subject to redemption purchase and forfeiture 
in the manner prescribed by said by-laws. 

Thirty-second. And the party of the second part further agrees 
that it will use all proper efforts to further the business interests 
of the party of the first part, and that it will offer suitable rewards 
to secure the conviction of any manufacturer who, having with the 
party of the second part an agreement similar to this, shall violate 
the same or any part thereof. 



Factors' Agreements 127 

Thirty-third. It is mutually agreed between the parties hereto 
that the commissioner of the party of the second part shall decide 
any questions which may arise as to the meaning, construction, or 
interpretation of this agreement or any part thereof, and that his 
decision shall be final and conclusive upon both the parties hereto, 
both as to the questions of law and fact. 

Thirty-fourth. It is further agreed between the parties hereto 
that if the party of the first part is accused of any violation of this 
agreement such accusation shall be referred to said commissioner, 
whose decision, subject only to the conditions imposed by the by- 
laws of the party of the second part, shall be final and conclusive 
upon both the parties hereto, both as to law and fact. 

Thirty-fifth. Whenever the word "goods" occurs in this agree- 
ment, it shall be construed to mean and include only table, stair, 
shelf, and enameled oil-cloths. 

Thirty-sixth. That as to making the reports, statements and 
payments required by this agreement, this agreement shall continue 
in force up to and including the fifteenth day of June, 1888, and as 
to other matters up to and including the thirty-first of May, 1888. 

In witness whereof, the party of the first part hath hereunto 

set , and the party of the second part hath 

caused these presents to be signed by its president. 

Exhibit 2 
american tobacco company i 

P. O. Box 2591. 

New York, October i, 1895. 

Dear Sir. — We will be glad to consign to you for sale, on commis- 
sion, our various brands of cigarettes, such cigarettes to be sent by 
us, and received, sold and accounted for by you, upon terms and 
conditions as follows, namely: 

First. All cigarettes which we may send to you, you are to sell 
to the retail trade only for retail purposes; you are to sell none to 
other than retail dealers except by our written permission. 

Second. You shall, at all times, sell our cigarettes at such prices 
only as we may fix in selling lists sent to you. You shall not sell, 
or dispose of, any cigarettes at lower prices than those so fixed. 

^ Report and Proceedings of the Joint Committee of the Senate and Assem- 
bly appointed to investigate Trusts. N. Y. Senate Documents, No. 40, 1897. 
pp. 878-883. 



128 IXDrSTRL\L COMBINATIONS AND TrUSTS 

Third. You are to guarantee all sales made by you. An extra 
compensation of 2 per cent, will be allowed, and can be deducted 
by you, on all advances made upon consignments whicli are re- 
mitted to us within ten days after the date of shipment to you. 

Fourth. All cigarettes consigned to you are to remain our prop- 
erty imtil sold by you, subject only to your lien thereon for all 
advances which you have made under the terms of this agreement. 

Fifth. The cost of freight from our factories is to be paid by us, 
or, if paid by you, to be allowed to you by us on account. 

Sixth. You are to guarantee us against loss by fire or other- 
wise of any cigarettes consigned to you, and you are to either re- 
turn to us the cigarettes in good condition or the price of the same 
as fixed on our selHng lists as above mentioned. You are also to 
pay all charges and other expenses of every nature connected with 
the storing, keeping and selhng of cigarettes which we may consign 
to you, or for your account, after the dehvery thereof by us to the 
common carrier, including all State, county and municipal taxes 
and license fees. 

Seventh. If you do not discriminate against our cigarettes in fa- 
vor of those of other manufacture, and if you do not sell, or dispose 
of, any of our cigarettes at less than the list price, and if, in aU re- 
spects, you comply with the terms of this agreement, we will pay 
you a commission of two and one-half (2-3^) per cent, on the amount 
reaHzed by you from the sale of the cigarettes which we may con- 
sign to you. 

Eighth. If, however, you handle cigarettes of our manufacture 
exclusively, and do not sell or distribute, or in any way aid in the 
sale, or distribution of, cigarettes of other manufacture, and if you, 
in all respects, fully comply with the terms and conditions of this 
agreement, we will pay you an additional commission of seven and 
one-half (7-Ji) per cent, on the amount reahzed by you from the 
sale of the cigarettes which we may consign to you. 

Xinth. Settlements and payments of commissions are to be made 
as follows: 

On April I, 1896, or as soon thereafter as practicable on all cig- 
arettes consigned by us to you from the date of your signing this 
contract to January- i, 1896, which have been sold by you and 
settled for prior to April i, 1S96. 

On July I, 1896, or as soon thereafter as practicable, on aU cig- 
arettes consigned by us to you during the three months ending 
April I, 1896, which have been sold by you and settled for prior 



Factors' Agreements 129 

to July 1, 1896, and so on, from quarter to quarter thereafter, in the 
same manner, for the subsequent consignments, sales and payments. 

Tenth. All obligations upon our part to pay you any commission 
for the sale of the cigarettes which we may consign to you is, and 
shall be, dependent upon your strict compliance with the agreement 
hereinbefore contained that you will not sell any of our cigarettes 
for a less price than that fixed in our selling lists sent to you. If 
you should sell, or dispose of any of our cigarettes at less than such 
price, you shall forfeit all right to the payment of any commis- 
sions on cigarettes which you may have previously sold, and on 
which commissions have not been paid you, and you shall at once, 
on demand, pay to us the list price for all cigarettes which you have 
sold, and deliver to us all of our cigarettes then in your possession 
which may have been previously consigned by us to you. 

Eleventh. Upon your acceptance in writing of the terms and 
conditions of this agreement, you understand and agree that you 
will handle our cigarettes exclusively, on the terms and conditions 
herein specified, and in the event that you hereafter determine 
to sell cigarettes of other manufacture, you are to notify us, in 
writing, of such determination; and thereafter, if you have fully 
compiled with all other terms of this agreement, the commissions 
to be paid to you for sale of our cigarettes shall be at the rate of 
two and one-half (2-3^2) P^r cent. 

Twelfth. If you shall sell or distribute, or in any way, directly or 
indirectly, aid in the sale or distribution of any other cigarettes than 
those of our manufacture, without having first given us written 
notice of your intention so to do, as required by paragraph eleventh, 
you shall not be entitled to claim or receive any commissions not 
previously paid to you in excess of two and one-half (2-3^) per cent, 
on any past or future sales under this agreement; and the right and 
option is hereby distinctly reserved to us to determine and declare 
that you have surrendered all right to be paid any commission over 
said rate of two and one-half per cent., if we shall be satisfied that 
you have in any way aided in the sale or distribution of cigarettes 
other than those manufactured by us. 

Thirteenth. We reserve the right of determining, at all times, 
as to the number of cigarettes and the brands which we will con- 
sign to you under this agreement, we to determine the matter be- 
fore or after receiving requests or reports from you; and you ex- 
pressly agree that you will promptly make reports, or account of 
all sales, to us, whenever, and as often as, we may call for the same. 



130 Industrial Combinations and Trusts 

Fourteenth. The right is reserved to us at any time, to decline 
to sell you any more cigarettes, and to withdraw the cigarettes al- 
ready consigned to you, upon repaying to you all your legitimate 
advances thereon, and the right is reserved to you, at any time, 
to decHne to act further for us, after having dehvered to us all 
cigarettes then in your hands, and paying over to us the proceeds 
of all sales of our cigarettes at list price. 

Fifteenth. Requests for consignments, as well as all advances and 
reports of sales with New York exchange, must be paid to our ofl&ce 
in New York. Commissions will also be settled and paid from there. 

Sixteenth. No employe of this company has any authority what- 
ever to change or modify this agreement, or any circular, letter, 
or price list of this company. 

Your agreement in writing hereon to receive our cigarettes on 
consignment and to sell and account for the same, under the above 
conditions when executed by you, will constitute a binding con- 
tract between you and our company. 
Very truly yours. 

The American Tobacco Company. 
By 

agree to receive cigarettes on consignment from the 

American Tobacco Company, and to sell the same, and to account 

to said company therefor, upon the terms and conditions set forth in 

the foregoing written proposition to us. To the faithful performance 

of all such terms and conditions we hereby agree and bind ourselves. 

Dated 1895. .^. , . 

^^ (Sign here) 

In the presence of 

(Witness sign here) 

City or town 

State 

Exhibit 3 
national wall paper company^ 

Memorandum of agreement between 

of (called the purchaser) and the National Wall 

Paper Company of New York, N. Y. (called the company). 

I. The purchaser agrees to select and order from and out of 
jobbing lines of the machine made goods of the company on or be- 
fore October i, 1896, wall paper to the aggregate amount of $ , 

^ Op. cit. N. Y. Trust Investigation, 1897, pp. 804-806. 



Factors' Agreements 131 

which hereby request the company to manufacture for 

^prior to April i, 1897, goods to be delivered F. O. B. at 

New York, or at the respective places of manufacture. 

2. The terms of this sale are four (4) months from date of invoice, 
with a discount at the rate of one per cent, per month for anticipated 
payments. Goods shipped between October 15th and March ist to 
date from March ist, and orders for goods not shipped before March 
I, 1897, may be cancelled by either party to this agreement. 

3. The purchaser expressly guarantee and agree that between 
September i, 1896, and June 30, 1897, will not purchase or acquire 
any wall paper or hangings the product of any person or corpora- 
tion other than the company, and that will give additional and du- 
plicate orders prior to July i, 1897, to the amount of $ , 

and in consideration of such guarantee and upon the performance 
thereof company shall credit the purchaser with the discounts 
hereinafter named on the attached schedule on all purchases from 
the jobbing Hues of the machine made goods of the company be- 
tween said dates. 1 Such discounts shall be figured and credited 
upon the basis of the shipments made hereunder and the discounts 
shall be calculated upon the gross prices published by the company 
in its price list for the patterns selected by the purchaser. The 
purchaser guarantee ^ as a condition of the allowance of such dis- 
counts to refrain from making such use thereof among the trade as 
to interfere with the uniformity of the company's price and terms, 
and that (the purchaser) will at all times during this contract main- 
tain the company's road prices. 

4. The company agrees to extend the same Une of discounts re- 
ferred to above to such goods as are contained in the exclusive 
lines of the machine made goods of the company, on the express 
guarantee that such goods will be used only for the retail depart- 
ment of the purchaser in the city of , and will not be 

offered at wholesale within his store or on the road. 

This contract shall at all times and for every purpose be deemed 
to have been made and executed at the principal office of the com- 
pany, in the city of New York, and it shall for every purpose be 
construed under the laws of the State of New York. 

Dated, the city of New York 1896. 



National Wall Paper Company, 

President, 
1 This sentence is thus in original. — Ed. 



132 Industrial Combinations and Trusts 

Exhibit 4 
american sugar refining company i 

New York, , 189 — . 

Dear Sir. — We enclose herewith invoice of even date, from which 
you are entitled to our usual deductions of one per cent, trade dis- 
count on one hundred barrel lots, and one per cent, for cash if paid 
within seven days. 

Should you so desire we shall be pleased, upon receipt of w^ithin 
written request, to constitute you one of our agents, in w^hich case 
sugar will be consigned to you for sale as our factor, upon the 
following terms, the title to remain in us subject to your advances 
and return to you of your necessary outlay: 

1. You are to advance to us within thirty days the amount of 
the invoice, which will be made up at our daily quotations, less one 
per cent, trade discount on one hundred barrel lots, with the right 
to deduct one per cent, additional if invoice is made cash in seven 
days; the advance to be without recourse to, or reclamation upon 
us, and to be due in any event. 

2. The sugar when sold is to be billed in your name, although in 
fact as factor for us, and you shall without reclamation upon us, 
at your own cost, pay all expenses and assume all risks of the prop- 
erty and of payment or collection. You are not to incur any ex- 
pense on our account. 

3. None of the sugar shall be sold or disposed of by you, either 
directly or indirectly, for less than our daily quotations, with freight 
added from refining point to point of sale (as per equality rate book), 
nor on more liberal terms as to credit or cash discounts. 

So long as the foregoing conditions are observed by you we -^-ill, 
upon an affidavit to that effect, pay you a commission of three- 
sixteenths of a cent per pound, and in addition thereto you shall 
retain the profit, if any, over the advance made as above pro\dded. 
In case of any failure to comply with either of the above conditions 
no commissions \\dll be payable. Settlements vnll be made for each 
month's commissions at the expiration of three months thereafter. 
All commissions payable for the period preceding the three months 
will then become due. Payments will only be made as above. 

1 Op. cit. N, Y. Trust Investigation, 1897, pp. 128-130. 



Factors' Agreements 133 

This agency is terminable at the pleasure of either party, on 
written notice. 

Yours respectfully, 

THE AMERICAN SUGAR REFINING COMPANY. 

State of ss. 

County of 

being duly sworn, says: I, as factor of the American 

Sugar Refining Company, claim from the company a com^ 
mission of three-sixteenth ^ of a cent per pound (less one per 

cent, where trade discount has been allowed), upon 

pounds of sugar consigned by the company to me by invoices, the 

dates of which cover the period from to inclusive. In 

compliance with the conditions upon which the sugar was consigned 
to me, and to entitle myself to the commission, I do hereby make 
affidavit that none of the sugar mentioned in the said invoices has 
been or will be sold or disposed of by me, either directly or indi- 
rectly, for less than the daily quotations of the company, with 
freight added from refining point to point of sale, as per Equality 
Rate Book, nor on more liberal terms as to credit or cash discounts. 

Sworn to before me 

this day of , in the year of 189 . 

Exhibit 5 
united states rubber company « 
memorandum of agreement 
Between the United States Rubber Company, selling agent, here- 
inafter called The Company, and of 

hereinafter called The Purchaser, whereby rubber boots and shoes 
(except tennis, which are not included in this agreement) sold by 

The Company are purchased by the said subject to the 

following terms, discounts and conditions: 

Gross Price List Season 1896-1897, Ending March 31, 1897, 
First Discounts. First Quality Brands: American, Boston-Bell, 
Candee, Lycoming, Meyer, New Brunswick, United States Rubber 
Company, Wales-Goodyear and Woonsocket, at 15 and 8 per cent, 
discount from above stipulated gross price list. 

1 Thus in original. — Ed. 

2 Op. cit. N. Y. Trust Investigation, 1897, pp. 646-652. 



134 Industrial Combinations and Trusts 

Second Quality Brands: Para, Neptune, Federal, Keystone, 
Essex, Jersey, Connecticut and Rhode Island, 15,12 and 8 per cent, 
discount from above stipulated gross price list. 

Third Quality Brand: Columbia, 15, 12, 12 and 8 per cent, dis- 
count from above stipulated gross price list. 

Cash discount of 8 per cent, per annum to be allowed for pre- 
payment. Interest, 6 per cent, per annum, will be charged on 
overdue accounts. It being understood that the agreement by the 
company to deliver under this contract is limited to the following 
brands: 

First Quality 

Second Quality 

Third Quality 



Second — Terms. — Deliveries of all goods made hereunder to 
November i will be payable December 15, 1896; deliveries in No- 
vember payable January 15, 1897; deliveries in December payable 
February 15, 1897; deliveries in January payable March 15, 1897; 
deliveries in February payable April 15, 1897; deliveries in March 
payable May 15, 1897. The company shall have the right to call 
for and purchaser agrees to give upon such call, cash or notes accept- 
able to the company for the net value of the goods delivered under 
this contract before the accounts therefor are due. 

Third. — The purchaser agrees to be governed in his selling price 
and terms by the instructions of the company, and hereby promises 
not to depart from or evade, by any direct or indirect means, all 
the conditions set forth in Section Fourth, Selling Price. It is also 
understood and agreed that these conditions, for sale of these goods 
by purchaser, apply to all on hand April i, 1896, as well as to present 
or future purchases under this contract. The company, on its 
part, agrees that if any change is made in the selling price imme- 
diate notice shall be given. And the said purchaser, in case of his 
failure at any time to faithfully observe all the terms and conditions 
of this contract, or any contract m.ade with the company, hereby 
consents to the cancelling by the company of all its unfilled orders 
then in the hands of the company, and in case of such default on 
the part of said purchaser the company also hereby reserves the 
right to cancel all said purchaser's orders then unfilled, and in case 



Factors' Agreements 135 

of such cancellation the accounts of said purchaser with the com- 
pany shall thereupon become immediately due and payable. 

Fourth — Selling Price. — Until further notice the prices and 
terms fixed by the company for the sale by the said purchaser of 
the within named goods (except to jobbers as per Article Seventh) 
are as follows: 

Discounts. — First QuaHty Brands, 15 per cent.; Second Quahty 
Brands, 15 and 12 per cent.; and Third QuaHty, 15, 12 and 12 per 
cent, from gross price Hst of 1 896-1 897. 

Terms. — Bills for delivery between April i and October 31, 

1896, both inclusive, shall be dated not later than November i, 
net thirty days, i per cent off for cash in ten days. 

If paid prior to November 10, 8 per cent per annum to Novem- 
ber 10, and the above mentioned i per cent, may be allowed. 

If paid between November 10 and December i, 8 per cent, per 
annum only may be allowed. 

Bills for deliveries between November i, 1896, and March 31, 

1897, both inclusive, shall be payable, net, thirty days from date 
of shipment, or i per cent off for cash in ten days. 

Freight. — Actual freight may be allowed by said purchaser from 
any point to any other point of railroad or steamboat delivery at 
his own cost and expense. 

Fifth — Liability as to Orders. — The company will not be obli- 
gated to deliver more goods than contracted for in this agreement, 
notwithstanding it may have received and acknowledged orders 
which exceed amount of cases contracted for in this agreement. 
It is also mutually agreed, in case of labor strikes, fire or other 
casualty that may curtail or stop the production of goods con- 
tracted for, that the company shall not be held responsible for non- 
fulfillment of orders beyond the capacity to produce, having refer- 
ence to the whole business, and, on the other hand, should fire or 
other casualty overtake the business of said purchaser, then the 
company will cancel his orders, if he so desires. In contracting for 
certain number of cases the company does not obligate itself to 
supply all in the particular style of boots and shoes which the orders 
detailed may call for, but only such quantities of the particular 
styles embraced in the orders detailed as the company can supply, 
having reference to the capacity to produce and its obligation to 
all of its customers. Two weeks' notice of any changes by the 
purchaser in detailed orders is required to cover goods in process 
of manufacture. 



136 Industrial Combinations and Trusts 

Sixth — Guarantee. — In consideration of the faithful perform- 
ance of this contract on the part of the purchaser, the company 
hereby guarantees that in case it shall, prior to December ist, next, 
reduce the selling price to retailers below the price herein named, 
a corresponding reduction shall be made to said purchaser on all 
goods shipped or delivered to him prior to that date. But in case 
any reduction is made in the price to retailers between December 
ist, 1896, and March 31st, 1897, both inclusive, then the said pur- 
chaser shall be entitled to a corresponding reduction only on 
goods actually on hand in his own store at the time of such 
reduction, a statement of which he shall furnish, under oath, if 
desired. It being understood that this guarantee shall not be 
affected by the sale of out-of-style, damaged or imperfect goods, 
and that the company reserves to itself entire freedom as to 
the classification of dealers to whom it may sell its goods direct as 
jobbers. 

Seventh — Exchange of Goods. — Nothing in this agreement shall 
prevent customers of the said company from exchanging with each 
other or purchasing from each other, at prices mutually agreed 
upon, and with written approval of the said company, its goods 
may be exchanged with, or sold to other jobbers, provided such 
goods bought, sold or exchanged, shall not be resold at any 
better discounts or terms than are stipulated in this agree- 
ment. 

Eighth. — Damaged or out-of-style goods which cannot be sold 
at full discounts, may be disposed of at reduced prices, with the 
consent of the company, upon sending to the company a list of 
such unsalable goods. To avoid any confusion with discounts on 
standard styles, all damaged and out-of-style goods must be sold 
at net prices. The company may sell damaged or out-of-style 
goods at reduced net prices. 

Ninth — Orders. — It is understood and agreed that all the fore- 
going conditions are to apply to all goods purchased by the said 

of the company, for the season ending March 31st, 1897, 

excepting that the discounts named in Section i apply only to 

cases, the detailed order of which the said purchaser 

promises to give immediately upon request. In case the said pur- 
chaser shall fail to send in detailed orders for the goods herein con- 
tracted for, within fifteen days after receipt of such request, in 
writing, then the company shall be released from the delivery of 
any and all goods not so ordered in detail. 



Factors' Agreements 137 

J 
All orders unfilled March 31st, 1897, will be understood as can- 
celled at that date. The company cannot undertake to mark or 
ship goods to the purchaser's customers. 

Tenth — N. B. — It is hereby understood and agreed to that this 
contract is absolutely between the seller and the purchaser, and 
annuls, cancels and obHterates any and all contracts, agreements, 
understandings or practices heretofore in vogue, under which the 
purchaser has heretofore bought goods of the brands herein con- 
tracted for, and it is distinctly understood that no other contract, 
agreement, understanding or previous practice prevails in respect 
to the subject matter of this contract, except those herein specif- 
ically provided. 

Dated at this first day of April, 1896. 



(This contract is not binding until 
approved by Director of Sales.) 
Approved: 

Director of Sales. 



SUPPLEMENTARY AGREEMENT. 

The United States Rubber Company, selling agent, hereinafter 
called The Company, in consideration of a certain agreement be- 
tween it and , hereinafter called The Purchaser, 

dated at April ist, 1896, hereby covenants and 

agrees with said purchaser, that if said purchaser shall have well 
and faithfully kept and performed all the undertakings on his 
part, to be performed in said agreement contained, and shall not 
have directly or indirectly violated the same or any provision 
thereof while it continues in force, The Company will, as soon after 
the first day of April, 1897, as The Company is satisfied that said 
agreement has been faithfully kept and performed by said Pur- 
chaser, and account settled in full, pay or credit him with 7 per 
cent, on the net amount of his purchases under said agreement. 

This 7 per cent, shall form no part of settlement between The 
Company and said Purchaser, but it is to be regarded purely in the 
light of a rebate, and payable only subject to the conditions herein 
stated. 



138 Industrial Combinations akd Trusts 

Provided, however, that if, in the opinion of the Company, 
v/hich is to be final and conclusive, said agreement shall have been 
in any material respect violated by said purchaser, he shall not be 
entitled to said rebate of 7 per cent., but shall pay for all goods 
purchased by him under said agreement, upon the terms and at 
the discounts therein mentioned, without further discount or re- 
bate. 

It is mutually understood that any freight or cash discount 
made by said Purchaser, other than as stipulated in said agreement, 
shall be deemed a violation of its terms as completely and to the 
same extent as a concession in terms or discount. 

And it is also nutually ^ understood that said Purchaser is to 
be held responsible for any violation of said agreement by his em- 
ployes. 

Dated , this first day of April, 1896. 



(This contract is not binding until 
approved by Director of Sales.) 
Approved : 

Director of Sales. 

Exhibit 6 
standard sanitary manufacturing company ^ 

Note. — This contract must be executed by the Purchaser in 
order to purchase Licensed Sanitary Enameled Iron Ware. 

JOBBERS LICENSE AGREEMENT 

This Agreement, Made this day of 

190. . , between the a corporation 

(hereinafter called the Com.pany) and 

State of (hereinafter called the 

Purchaser). 

^ Thus in original. — Ed. 

2 United States of America v. Standard Sanitary Manufacturing Company and 
others. In the Circuit Court of the United States for the District of Maryland. 
Pet. Exhibit No. 11, Record, Vol. 11, pp. 32-39. 



Factors' Agreements 139 

WITNESSETH: Whcrcas the Company is licensed under certain 
United States Letters Patent relating to Sanitary Enameled Ware 
and processes and apparatus used in the manufacture thereof, 
which said Letters Patent are enumerated as follows: 



SCHEDULE OF PATENTS 

Pat. No. Date Inventor Title 

633,941 Sept. 26th, 1899 James Arrott Dredger for Pulveru- 
lent Material. 

949,625 Feb. 15th, 1910 E. Ditheridge Pneumatic Sieve. 

939,918 Nov. 9th, 1909 William Lindsay Enameling Powder 

Distributor. 

And Whereas, the Purchaser desires to purchase from the Com- 
pany Sanitary Enameled Iron Ware embodying or made in ac- 
cordance with said inventions, and to obtain licenses to sell such 
ware to others, and the Company is willing to sell Sanitary Enam- 
eled Iron Ware to the Purchaser, and to license it for resale on the 
following terms and conditions: 

Now, Therefore: 

I. The Company agrees to sell and the Purchaser agrees to buy 
for a period of time beginning June ist, 1910, and ending December 
31st, 1910, Sanitary Enameled Iron Ware at the follow- 
ing discounts from the prices given in the various Schedules: 

(Insert label) 

DISCOUNTS AND TERMS 

Articles 

Discounts from Resale Prices 
Established by the Licensor. 
(To be allowed on invoices 
by the Manufacturer) 

Schedule No. 1-5 year Guaranteed Baths, Foot, Pool, Sitz 

and Child's and Receptors 7-/^% 

Schedule No. 2-2 year Guaranteed Baths 5% 

Schedule No. 3-AII other Grades of Baths 5% 

Schedule No. 4-Small Wares, Drinking Fountains, Lava- 
tories, etc 7-3^% 

Exceptions: Lavatories, similar to Plates 
(Standard) P-558, 559. 561 and 562 5% 



140 Industrial Combinations and Trusts 

Articles 

Discounts from Resale Prices 

Established by the Licensor. 
(To be allowed on invoices 
by the Manufacturer) 

Schedule No. 4-J^-Roll Rim Sinks and Combinations, 
Slop Sinks, Sink Backs and Ends, Drain 
Boards, Factor}' and Wash Sinks, Sink and 
Tray Combinations, Laundry Trays, Closet 
Bowls and Urinals 5% 

Schedule No. 5-Flat Rim Sinks and Combinations, Square 
and Round Corner Kitchen, Half Circle, 
Corner, Slop Sinks, Slop Hoppers, Wash 
Bowls, Trap Standards and Grease Traps 5% 

Schedule No. 6-Tanks, Closet and Urinal, High and Low 

Pattern 5% 

Terms: Net 60 days or i^c for cash loth of month following 
shipment. 

DELIVERIES 

2. Goods will be sold to the Purchaser, F. O. B. Cars where 
factor}^ is located, at the prices given in the Resale Sheets for the 
various zones (subject to the Discounts and Rebates named) TA^ith 
full freight allowed on shipments of 200 pounds and over (subject 
to the Freight Tariff Regulations herein pro^dded for) to the Hst 
of cities named in the various zones. To other points than those 
named, delivery can be made only on the basis of the Purchaser 
being charged and paying freight from the nearest city named, 
based on the weights shown in the sheets and at the rates shown 
in the EquaHzing Tariff Schedule. 

Note: Goods may be shipped in mixed car loads to all points, 
on, or east of the western bank of the ^Mississippi River, Minneap- 
olis to New Orleans and to the Atlantic Seaboard, inclusive. To 
points west of the western bank of the ^lississippi River, goods 
may only be shipped in mixed car loads to points so provided for 
in the Railroad Tariffs and Classifications. 

Goods shall be resold by the Purchaser at prices estabhshed and 
prevailing in the various zones into which the goods are shipped 
regardless of the point of purchase. 

Purchaser wdll be allowed car load prices in any quantity on 
shipments to the manufacturing and jobbing points specified. On 
shipments to jobbing points other than manufacturing points, car 
load or less car load prices "^ill apply according to quantity. 



Factors' Agreements 141 



GENERAL CONDITIONS 

3. Prices or other regulations are effective the morning of the 
date appearing on the sheet. 

4. The ware covered by the Price Sheets shall be invoiced by 
the individual items, and it is not permissible to bill collectively 
several articles in a "Lump Sum." 

5. The various conditions respecting "Guarantees" under which 
the ware is purchased by the jobber, shall not be varied in the re- 
sale to the plumber. 

6. The restrictions herein contained as to the prices at which 
Sanitary Enameled Iron Ware is to be purchased and sold, shall 
not apply to Sanitary Enameled Iron Ware sold and exported to 
Foreign Countries. Such sales must be proved bona fide to the 
Licensor. 

REBATES 

7. If all the conditions of this agreement have been complied 
with and you have confined your purchases to the Licensed Manu- 
facturers, we will pay you rebates on such purchases as you have 
made from us as follows: 

Schedule No. 1-5 year Guaranteed Baths, Foot, Pool, Sitz 

and Child's and Receptors . . . 5% 

Schedule No. 2-2 year Guaranteed Baths 5% 

Schedule No. 3-AII other Grades of Baths 5% 

Schedule No. 4-Small Wares, Drinking Fountains, Lava- 
tories, etc 5% 

Exceptions: Lavatories, similar to Plates 
(Standard) P-55S, 559. 561 and 562 5% 

Schedule No. 4-J-R0II Rim Sinks and Combinations, Slop 
Sinks, Sink Backs and Ends, Drain Boards, 
Factory and Wash Sinks, Sink and Tray 
Combinations, Laundry Trays, Closet 
Bowls and Urinals 5% 

Schedule No. 5-Flat Rim Sinks and Combinations, Square 
and Round Cornered, Kitchen, Half Circle, 
Corner, Slop Sinks, Slop Hoppers, Wash 
Bowls, Trap Standards and Grease Traps. 5% 

Schedule No. 6-Tanks, Closet and Urinal, High and Low 

Pattern 5% 



142 Industrial Combinations and Trusts 

8. If your purchases of material, less returned goods, covered 
by the various Schedules from the following Manufacturers li- 
censed under the patents enumerated hereinbefore: 

Barnes Manufacturing Co., The Mansfield, 0. 

Cahill Iron Works, The Chattanooga, Tenn. 

Colwell Lead Co New York. 

Day-Ward Co., The Warren, O. 

Humphreys Mfg. Co., The Mansfield, O. 

Kerner Manufacturing Co Pittsburg, Pa. 

Mott Iron Works, The J. L New York City 

McVay & Walker Braddock, Pa. 

McCrum-Howell Co., The New York City 

National Sanitary Mfg. Co., The Salem, O. 

Standard Sanitary Mfg. Co Pittsburgh, Pa. 

Union Sanitary Mfg. Co Noblesville, Ind. 

United States Sanitary Mfg. Co Pittsburgh, Pa. 

Wolff Mfg. Co., L Chicago, 111. 

Weiskittel & Son Co., A Baltimore, Md. 

Wheeling Enameled Iron Co Wheeling, W. Va. 

have aggregated sums as follows and if all the conditions of this 
agreement have been complied "^^-ith, the Company will pay the 
Purchaser rebates on such purchases as they have made from the 
Company during the period ending December 31st, 1910, as fol- 
lows, 

$10,000 2-3^% 

$15,000 3 % 

$20,000 3-3^% 

$25,000 4 % 

$30,000 5 % 

Rebates are payable only at the expiration of the period ending 
December 31st, 1910, and after claims have been approved by 
E. L. Wayman, Licensor, Arrott Building, Pittsburgh, Pa. 

Written application for rebate must be made at the close of the 
rebate period to E. L. Wayman, Licensor, upon standard forms, 
which may be obtained from him for that purpose. Unless claim 
for rebate is presented within 30 days after the expiration of this 
agreement, the right to refuse to allow such rebate is reserved by 
the Licensor named above. 

If at the expiration of this contract, a similar contract is made 
between the parties hereto and the purchases under each contract 



Factors' Agreements 143 

are sufficiently large so that the aggregate of the purchases under 
both contracts are double the amounts named above, then the 
Compaany ^ will pay the percentage rebate named above on the 
entire amount of such purchases under both contracts, but it shall 
not be permissible to aggregate purchases made under more than 
two successive contracts to obtain any greater rebate than may be 
payable under the last of such two successive contracts. 

9. The Purchaser understands that the re-sale prices of all ware 
manufactured under the Letters Patent enumerated herein^ as 
established from time to time by the Company, must be maintained 
by all Licensed Sanitary Enameled Iron Ware Manufacturers and 
by all Jobbers and Dealers and that sales by one Jobber to another 
cannot be made at any better prices than established in the sheets. 
The Purchaser therefore agrees that he will observe and strictly 
maintain on all types and classes of ware the selling prices as they 
are set forth in the schedules, and will observe and strictly adhere 
to the rules and regulations as embodied in the Price Sheets and 
furnished as a part of this agreement, or as they may be embodied 
in the Price Sheets issued hereafter and substituted by or under the 
authority of the Licensor (E. L. Wayman) in place of those fur- 
nished herewith. Articles may be added to or removed from the 
schedules at any time; but in the event of such removal, the pur- 
chases to date of such removal will be considered as part of the 
amount on which rebate is estimated. 

10 The Purchaser also agrees during the life of this company 
not to purchase, sell, advertise, solicit orders for, or in any way 
handle or deal in Sanitary Enameled Iron Ware of any manufac- 
turer not Hcensed under the Letters Patent enumerated herein, 
except with the express written permission of the Licensor. Breach 
of any of the provisions of this agreement, or any failure to maintain 
and observe prices, rules or regulations shall give the Company, 
or E. L. Wayman, owner of the Patents hereinbefore enumerated, 
an option immediately to cancel this contract, all unfilled orders 
and to withhold all rebates; and the Purchaser is hereby expressly 
put on notice that in case of any such failure, he can not there- 
after obtain Sanitary Enameled Iron Ware manufactured under 
the Letters Patent above enumerated from any of the Licensed 
Manufacturers. 

II. As an added consideration for this agreement whereby the 
Purchaser is to be sold goods manufactured under the patents 
1 Thus in original. — Ed. 



144 Industrial Combinations and Trusts 

hereinbefore named, the Purchaser hereby agrees that as to all 
goods, wares and merchandise, which are manufactured under and 
in accordance with the patents hereinbefore named, the Purchaser 
mil only resell such goods now on hand, or already purchased by 
him, irrespective of by whom such goods have been manufac- 
tured, in accordance wdth the rules, terms, conditions, prices and 
regulations of sale which are herein established, or which may 
hereafter be established in accordance with the terms of this agree- 
ment, as specially set forth in paragraph 9 hereof. 

12. This agreement does not become binding on the Company 
until accepted in waiting at the foot hereof by the Sales Manager or 
his duly authorized representative Seated in the main sales office 
of the Company. 



Accepted this, 
day of . 



(Purchaser) 

(Company) 

By 

This statement must be signed by both Manufacturer and 
Jobber, detached and filed promptly with E. L. 
Wayman, Arrott Building, Pittsburg, Pa. 

Dated 191. . 

E. L. Wayman, Licensor, 
Arrott Building, 
Pittsburg, Pa. 
This is to certify that a "Jobber's License Agreement" Purchase 
Contract has been executed between 

(Manufacturer) 

and (Jobber) 

(City and State) 

at the following Discounts (subject to the established rebates) 
from the Resale Prices estabhshed by you or that may be established 
by you during the period ending December 31st, 1910. 
(Here follows schedule of articles) 



Factors' Agreements 145 



Exhibit 7 

excerpts showing the operation of the factors' agreement 
of the american tobacco company ^ 

LIST OF CONSIGNEES WHOSE AGREEMENTS WERE REVOKED 
FOR HANDLING OPPOSITION GOODS, AS SHOWN BY THEIR OWN 
TESTIMONY AND THAT OF MR. BROWN. 

Revoked before March i, 1893. 

Sussman Brothers, New York city, December 21, 1893, cause, 
pushing Admiral cigarettesrr-''A general inimical feeling to the 
company and abuse of me.'™Browne, p. 1370. 

John R. Miller & Son, Newark, N. J. February 4, 1893. Under- 
stood to have been given the sole agency for the National Cigarette 
and Tobacco Company's goods in Newark and vicinity. Browne, 
p. 1351; Dunstatter, pp. 1125-1126; total 2. 

FOR HANDLING ADMIRAL CIGARETTES AFTER MARCH 
I, 1895. 

Monroe Cigar Co., Rochester, N. Y., May 3, 1893. They were 
pushing the Admirals and seemed to be closely in touch with the 
National Company. Their account was also in a very unsatisfac- 
tory condition. Browne, p. 1352. They had the sole agency for 
the Admiral Cigarettes in Rochester and thirty miles around. 
Tuke, 274. 

John McLaughlin, Lancaster, Pa., May 23, 1893. Was cut off 
for "active pushing of the Admiral Cigarette and the accompany- 
ing advertisement discriminating against our goods." "Was 
giving them the preference over ours." Browne, p. 1354. 

Alexander Wilson & Co., Pittsburg, Pa., May 26, 1893. They 
"were the most active distributors of Admirals that they (Na- 
tional) had in Pittsburg." The agreement would have been re- 
voked even if they had not accepted the agency for the Admirals. 
Browne, p. 1377-8. See also report of Charles E. Brown, p. 1647. 

Love, Sunshine Co., Johnstown, Pa., May 26, 1893. They were 
the agents of the National Company and put their whole force 
into selling the National Company's goods. Browne, p. 1343. 

Martin & Co., Pittsburg, Pa., May 26, 1893. They were "ex- 
traordinarily active" in pushing Admirals. They were trying to 

*0p. dt. N. Y. Trust Investigation, 1897, pp. 913-922. 



146 Industrial Combinations and Trusts 

displace the A. T. Co.'s goods and boasted what they would do 
with them. Browne, p. 1349. See also report of Charles E. Brown, 
p. 1643. 

M. F. H. Woerner, Manayunk, Pa., May 26th, 1893. Was 
"trying to push and urge the sale of Admirals." Brown, pp. 1334, 
1381. 

John Schwartz, Hazleton, Pa., May 26, 1893. Took in Admiral 
Cigarettes. "All orders for or taken by the National Cigarette 
and Tobacco Company men and by his own men, with his own 
wagon, were filled by him." Brown, p. L ^ 638. 

John Rauch, Indianapolis, Ind., June 14, 1893. Was cut off 
"for the interest he took in the Admiral Cigarette, the activity in 
their distribution and so on." He was also very friendly with the 
officers of the National Company, who were then making a "great 
big display" wdth their "No Trust" advertisements in Indian- 
apolis. Brown, p. 1363. 

August Rickebush Tobacco Company, Milwaukee, Wis., July 6, 
1893. They were agents for the National Cigarette and Tobacco 
Co., and are regarded as part of that company themselves. They 
also cut prices on tobacco and advertised their own goods as "not 
made by a Trust." Brown, p. 135 1. 



FOR HANDLING ''ROYAL SWEETS", A BRAND OF CIGARETTES 
CLAIMED TO BE AN IMITATION OF "SWEET CAPORALS". 

C. A. Whelan & Co., Syracuse, N. Y., May 2, 1892. George 
Whelan, the company of that concern, became an employee of the 
National Cigarette and Tobacco Company at a salary of four 
thousand dollars a year, and they immediately began pushing the 
"Royal Sweet Cigarettes," which we considered an imitation of 
ours. Brown, p. 1542. 

Boston Cigar and Tobacco Co., Boston, Mass., May 4, 1895. 
"A. R. Mitchell & Co. had the agency for the Royal Sweet Ciga- 
rettes, and the Boston Cigar and Tobacco Co. were actively, as the 
sub-agents of these, pushing them." Brown, p. 13 13. See also 
report of R. R. Lawrence, p. 1540. 

Brewster, Crittenden & Co., Rochester, N. Y., May 9, 1895. 
Were cut off for handling "Royal Sweets Imitation Cigarettes." 

S. S. Sleeper & Co., Boston, Mass., July 12, 1895. A member of 

^ Thus in original. — Ed. 



Factors' Agreements 147 

this firm became president of the Executive Association of the 
Wholesale Grocers of New England, who were fighting the A. T. 
Co., and pushing the Royal Sweet cigarettes. The agency had 
entered into an agreement with the National Cigarette and To- 
bacco Company to give its goods the preference, for which it was to 
receive the sum of about $35,000. S. S. Sleeper & Co. had carried 
out the agreement of the association and had their windows full of 
the imitation cigarettes. Brown, pp. 1544, 1546. 

FOR HANDLING OTHER CIGARETTES THAN THOSE MADE BY 
THE NATIONAL CIGARETTE AND TOBACCO COMPANY. 

Boston Cigar and Tobacco Co., Boston, Mass., June 15, 1893. 

West, Stone & Co., Springfield, Mass., July 15, 1893. 

The Boston Cigar and Tobacco Co. was an offshoot of A. R.- 
Mitchell & Co., who had taken the agency for New England for 
the sale of the "Beauty Bright" cigarettes, and A. R. Mitchell & 
Co., and the Boston Cigar and Tobacco Co. were actively pushing 
and urging the sale of "Beauty Brights" in preference to the A. T. 
Co.'s goods. Brown, pp. 1321, 1322 and 1376. 

West, Stone & Co., A. R. Mitchell & Co. and the Boston Cigar 
and Tobacco Co. were just the same as one concern with branches. 
All of them were distributing "Beauty Brights" to the detriment 
of the A. T. Co.'s brands. Brown, p. 1376. 

Charles McArthur, buying agent for West, Stone & Co., 1893, 
says that "West, Stone & Co. made an agreement with Mr. Rich- 
ards of A. R. Mitchell & Co., under which they. West, Stone & Co., 
were to have the sole and exclusive agency of the goods (Beauty 
Brights) for the city of Springfield, and in consideration they were 
to push the goods to the exclusion of all others and receive an extra 
bonus of 5 per cent." He further says that he was one of the sales- 
men and knows that they did push Beauty Bright goods to the ex- 
clusion of all other paper cigarettes for a time. That he did it him- 
self (pp. 1777-1779). 

Total, 2. 

Total revocations for handling other goods, 36. 

LIST OF CONSIGNEES OR DEALERS WHO TESTIFIED THAT THEY 
WERE NOT ALLOWED TO SELL OPPOSITION GOODS UNDER THE 
CONSIGNMENT AGREEMENT, BUT WERE NOT CUT OFF. 

^ Hobart J. Park, of Park and Tilford, says that this firm at one 
time received upon consignment 25,000 cigarettes from the National 



148 Industrial Combinations and Trusts 

Cigarette and Tobacco Company. That after they began to sell the 
same, Mr. Butler, secretary of the A. T. Co. called his attention 
to the sixth clause of the consignment agreement, and said that 
''if we continue to sell the National cigarettes it would allow them 
to give us the discount or not as they saw fit on the American To- 
bacco Company cigarettes; it was a violation of the contract, and 
we looked at the contract and we sent the goods back" (p. 45). 
He further said that Mr. Butler did not say anything about refus- 
ing to sell or consign any other goods if Park & Tilford kept the Na- 
tional Company's goods (p. 46). 

Joseph Park says that Mr. Butler gave him to understand that 
he was violating the contract and that the A. T. Co. could not con- 
tinue their discount if he handled other than the A. T. Co.'s ciga- 
rettes or any in competition with them. That he violated their 
agreement (p. 196). 



LIST OF THOSE CONSIGNEES WHOSE AGREEMENTS WERE RE- 
VOKED FOR CUTTING PRICES, AS SHOWN BY THEIR TESTI- 
MONY AND THAT OF MR. BROWN. 

Revoked before March i, 1893. 
Gilderhouse, Wilfing & Co., St. Louis, Mo., June 6, 1892. Brown, 

P- 1336. 

Sussman Brothers, New York city, June 11, 1892. Brown, p. 
1369. 

A. F. Cunningham & Co., Philadelphia, Pa., November 21, 1892, 
Brown, p. 1329; p. 882. 

Americus Grocery Co., Americus, Ga., December 3, 1892. Brown, 
p. 297. 

Total 4. 

Revoked after March i, 1893. 

Henry Berbert, Brooklyn, N. Y., May 26, 1893 and June 19, 

1893. Brown, p. 1315; Burbert,^ pp. 358-359- 

S. Benjamin, Brooklyn, N. Y., June 16, 1893. Brown, p. 13 16. 
A. & W. Diamond, New York city, June 19, 1893 and June 18, 

1894. Brown, p. 1334; Arnold Diamond, pp. 435, 436, 43^, 439- 
M. H. Rieders, New York city, June 19, 1893 and June 18, 1894. 

Brown, p. 1364; Rieders, pp. 383-385, 387, 388. 

1 Thus in original. — Ed. 



Factors' Agreements 149 

B. Berschatsky, Brooklyn, N. Y., June 19, 1893 and June 18, 
1894. Brown, p. 1312; Berschatsky, pp. 444, 445, 448. 

I. Jackson, New York city, June 20, 1893 and July 20, 1893. 
Brown, p. 1339. 

Exhibit 8 
dr. miles medical company v. john d. park & sons 

COMPANY ^ 

The complainant Dr. Miles Medical Company, an Indiana 
corporation, is engaged in the manufacture and sale of proprietary 
medicines, prepared by means of secret methods and formulas and 
identified by distinctive packages, labels and trade-marks. It has 
established an extensive trade throughout the United States and 
in certain foreign countries. It has been its practice to sell its medi- 
cines to jobbers and wholesale druggists who in turn sell to retail 
druggists for sale to the consumer. In the case of each remedy, it 
has fixed not only the price of its own sales to jobbers and wholesale 
dealers, but also the wholesale and retail prices. The bill alleged 
that most of its sales were made through retail druggists and that 
the demand for its remedies largely depended upon their good will 
and commendation, and their ability to realize a fair profit; that 
certain retail establishments, particularly those known as depart- 
ment stores, had inaugurated a "cut-rate" or "cut-price" system 
which had caused "much confusion, trouble and damage" to the 
complainant's business and "injuriously affected the reputation" 
and "depleted the sales" of its remedies; that this injury resulted 
"from the fact that the majority of retail druggists as a rule cannot, 
or believe that they cannot realize sufiicient profits" by the sale of 
the medicines "at the cut-prices announced by the cut-rate and 
department stores", and therefore are "unwilhng to, and do not 
keep" the medicines "in stock" or "if kept in stock", do not urge 
or favor sales thereof, but endeavor to foist off some similar remedy 
or substitute, and from the fact that in the public mind an article 
advertised or announced at 'cut' or 'reduced' price from the es- 
tabHshed price suffers loss of reputation and becomes of inferior 
value and demand." 

It was further alleged that for the purpose of protecting "its 
trade sales and business" and of conserving "its good will and repu- 

1 220 U. S. 373. 



150 Industrial Combinations and Trusts 

tation" the complainant had estabHshed a method ''of governing, 
regulating and controlling the sale and marketing "of its remedies, 
which is thus described in the bill: 

'' Contracts in writing were required to be executed by all jobbers 
and wholesale druggists to whom your orator sold its aforesaid 
remedies, medicines and cures, of the following tenor and effect: 

" Consignment Contract — Wholesale. 
''The Dr. Miles Medical Company. 

"This agreement made by and between the Dr. Miles Medical 
Company, a corporation, of Elkhart, Indiana, hereafter referred to 

as the Proprietor, and hereinafter referred to as the 

Consignee, Witnesseth: 

"That the said Proprietor hereby appoints said Consignee one 
of its Wholesale Distributing Agents, and agrees to consign to such 
Consignee for sale for the account of said Proprietor such goods of 
its manufacture as the Proprietor may deem necessary, the title 
thereto and property therein to be and remain in the Proprietor 
absolutely until sold under and in accordance with the provisions 
hereof, and all unsold goods to be immediately returned to said 
Proprietor on demand and the cancellation of this agreement. Said 
goods to be invoiced to consignee at the following prices: 

"Medicines, of which the retail price is $1,00; $8.00 per dozen. 

" Medicines (if any) of which the retail price is 50 cents; $4.00 per 
dozen. 
' "Medicines, of which the retail price is 25 cents: $2.00 per dozen. 

"Freight on all orders, the invoice price of which amounts to 
$100.00 or more, to be prepaid by the Proprietor; otherwise, freight 
to be paid by Consignee. 

" Said Consignee agrees to confine the sale of all goods and prod- 
ucts of the said Proprietor strictly to and to sell only to the desig- 
nated Retail Agents of said Proprietor as specified in lists of such 
Retail Agents furnished by said Proprietor and alterable at the will 
of said Proprietor, and to faithfully and promptly account and pay 
to the Proprietor the proceeds of all sales, after deducting as full 
compensation for all services, charges and disbursements a com- 
mission of ten per cent of the invoice value, and a further com- 
mission of five per cent on the net amount of each consignment, 
after deducting the said ten per cent commission, on all advances on 
account remitted within ten days from date of any consignment, 
it being agreed between the parties hereto that such advances shall 



Factors' Agreements 151 

in no manner afifect the title to such goods, which title shall remain 
in the Proprietor as if no such advances has been made; provided 
that such advances shall be repaid to said Consignee should the 
said Proprietor terminate this agreement and the return of any un- 
sold goods on which advances have been made. Said Consignee 
guarantees the payment for all goods sold under this agreement and 
agrees to render a full account and remit the net proceeds on the 
first day of each month of and for the sales of the month preceding. 
Failure to make such accounting and remittance within ten days 
from the first of each month shall render the whole account payable 
and subject to draft, but the proceeds of such draft shall not affect 
the title of any unsold goods, which shall remain in the Proprietor 
until actually sold, as herein provided. 

"It is further agreed that the Consignee shall furnish the Pro- 
prietor from time to time upon demand full statements of the stock 
of goods of the Proprietor on hand on any date specified and that a 
failure to furnish such statements within ten days from date of such 
demand shall be a sufficient cause for the cancellation of this agree- 
ment, and a demand for the return of the consigned goods. 

"It is further agreed that the Proprietor will cause each retail 
package of its goods to be identified by a number and said Consignee 
hereby agrees to furnish the said Proprietor full reports upon proper 
cards or blanks furnished by said Proprietor of the disposition of 
each dozen or fraction of such goods by means of the identifying 
numbers, specifying the names and addresses of the Retail Agents 
to whom such goods have been delivered and the dates of such 
delivery, and to send such reports to said Proprietor at least semi- 
monthly, and at any other time on the request of said Proprietor. 

"It is understood and agreed between the parties hereto that 
the commissions herein specified shall not be considered as earned 
by said Consignee upon any goods of said Proprietor which shall 
have been delivered to dealers not authorized agents of said Pro- 
prietor, as per list of such agents, or upon any goods whose disposi- 
tion by said Consignee shall not have been properly reported as 
herein provided, or sold at prices less than the prices authorized, 
and that said Consignee shall not credit any such commissions when 
making remittances on consignment account provided notice has 
been given by said Proprietor that such commissions are unearned; 
and that if such unearned commissions have been deducted by said 
Consignee in making advance payments or monthly remittances on 
accoimt they shall be charged back to said Consignee and credited 



152 Industrial Combinations and Trusts 

and paid to said Proprietor. It is understood that violation or 
nonobservance of any provision hereof by the Consignee shall make 
this agreement terminable and all unsold goods returnable at the 
option of the Proprietor. 

"It is agreed that the goods of said Proprietor shall be sold by 
said Consignee only to the said Retail or Wholesale Agents of said 
Proprietor, as per hst furnished, at not less than the following prices, 
to-wit: 

"Medicines, of which the retail price is $1.00; $8.00 per dozen 

"Medicines (if any) of which the retail price is 50 cents; $4.00 
per dozen. 

"Medicines, of which the retail price is 25 cents; $2.00 per dozen. 

"Provided, that said Consignee may allow a cash discount not 
exceeding one per cent, if paid within ten days from date of invoice, 
and that when sales at one time and at one invoice, amoimt to 
$15.00 or more, the said Consignee may allow three per cent trade 
discount, and if said purchase amounts to $50.00 or more, five per 
cent trade discount, all without cost to the Proprietor, and if such 
$50.00 quantity shall be shipped direct to the retail purchaser from 
the laboratory of said Proprietor, on the order from said Wholesale 
Distributing Agent, freight will be prepaid by the Proprietor, but 
not otherwise. 

"This contract will take effect when the original, duly signed 
by the Consignee, has been received and accepted by The Dr. 
Miles Medical Company, at Elkhart, Indiana. 

''Done under our hands , A. D. 1907. 

"Fill in date on above Hne. 

"the dr. miles medical company. 

" , Wholesale Dealer. 

"Sign your name on above line. 
"Original. Return in Enclosed Envelope." 

"And written contracts were required with all retailers of your 
orator's said proprietary remedies, medicines and cures, as follows: 

^^ Retail Agency Contract. 

"The Dr. Miles Medical Company. 

"This agreement between The Dr. Miles Medical Company of 

Elkhart, Indiana, and , of 

"Retailer's Name on above line. Town. State, 
"hereinafter referred to as Retail Agent, witnesseth: 



Factors' Agreements 153 



^^ Appointed Agent. 

"The said Dr. Miles Medical Company hereby appoints said Re- 
tail Dealer as one of the retail distributing agents of its Proprietary 
Medicines and agrees that said Retail Agent may purchase the 
Proprietary Medicines manufactured by said Dr. Miles Medical 
Company (each retail package of which the said Company will 
cause to be identified by a number) at the following prices, to wit: 

^^ Wholesale Prices. 

"Medicines, of which the retail price is $1.00; $8.00 per dozen. 
"Medicines, of which the retail price is 50 cents; $4.00 per dozen. 
"Medicines, of which the retail price is 25 cents; $2.00 per dozen. 

"Quantity Discount, 

"Provided that when purchases at one time and on one invoice 
amount to $15.00 (or more), Wholesale Distributing Agents are 
authorized to allow 3 per cent trade discount; if such purchase 
amounts to $50.00 (or more) 5 per cent trade discount will be al- 
lowed, and if such $50.00 quantity be shipped direct to the pur- 
chaser from the laboratory of said Dr. Miles Medical Company for 
the account of such Wholesale Agent, freight will be prepaid, but 
not otherwise. 

''Full Price. 

"In consideration whereof said Retail Agent agrees in no case 
to sell or furnish the said Proprietary Medicines to any person, 
firm or corporation whatsoever, at less than the full retail price 
as printed on the packages, without reduction for quantity; and 
said Retail Agent further agrees not to sell the said Proprietary 
Medicines at any price to Wholesale or Retail dealers not accred- 
ited agents of the Dr. Miles Medical Company. 

" Violation. 

"It is further agreed between the parties hereto that the giving 
of any article of value, or the making of any concession by means 
of trading stamps, cash register coupons, or otherwise, for the pur- 
pose of reducing the price above agreed upon shall be considered a 
violation of this agreement, and further it is agreed between the 
parties hereto that Dr. Miles Medical Company will sustain dam- 



154 Industrial Combinations and Trusts 

age in the sum of twenty-five dollars ($25.00) for each violation of 
any provision of this agreement, it being otherwise impossible to 
fix the measure of damage. 

^' This contract will take effect when a duplicate thereof, duly 
signed by the Retail Agent, has been received and approved by 
The Dr. Miles Company, at its ofiice at Elkhart, Indiana. 

"Done under our hands , A. D. 1907. 

"Fill in date on above line. 

"the dr. miles medical company, 
" , Retail Dealer. 

"Sign your name on above line in ink. 
"To Retail Dealer; 

"Paste printed label, giving name and address, that your name 
may be correctly listed. 

"Duplicate. Keep for reference." 

As an aid to the maintenance of the prices thus fixed the company 
devised a system for tracing and identifying, through serial numbers 
and cards, each wholesale and retail package of its products. 

It was alleged that all wholesale and retail druggists, "and all 
dealers in proprietary medicines," had been given full opportunity, 
without discrimination, to sign contracts in the form stated, and 
that such contracts were in force between the complainant "and 
over four hundred jobbers and wholesalers and twenty-five thou- 
sand retail dealers in proprietary medicines in the United States." 

The defendant is a Kentucky corporation conducting a wholesale 
drug business. The bill alleged that the defendant had formerly 
dealt with the complainant and had full knowledge of all the facts 
relating to the trade in its medicines; that it had been requested, 
and refused, to enter into the wholesale contract required by the 
complainant; that in the city of Cincinnati, Ohio, where the defend- 
ant conducted a wholesale drug store, there were a large number of 
wholesale and retail druggists who had made contracts, of the sort 
described, with the complainant, and kept its medicines on sale 
pursuant to the agreed terms and conditions. It was charged that 
the defendant, "in combination and conspiracy with a number of 
wholesale and retail dealers in drugs and proprietary medicines, 
who have not entered into said wholesale and retail contracts" re- 
quired by the complainant's system and solely for the purpose of 
selling the remedies to dealers "to be advertised, sold and marketed 
at cut-rates," and " to thus attract and secure custom and patronage 
for other merchandise, and not for the purpose of making or re- 



Factors' Agreements 155 

ceiving a direct money profit" from the sales of the remedies, had 
unlawfully and fraudulently procured them from the complainant's 
"wholesale and retail agents" by means "of false and fraudulent 
representations and statements, and by surreptitious and dishonest 
methods, and by persuading and inducing, directly and indirectly," 
a violation of their contracts. 

It is further charged that the defendant, having procured the 
remedies in this manner, had advertised and sold them at less than 
the jobbing and retail prices established by the complainant; and 
that for the purpose of concealing the source of supply the identi- 
fying serial numbers, which had been stamped upon the labels and 
cartons, had been obliterated by the defendant or by those acting 
in collusion with the defendant, and the labels and cartons had been 
mutilated thus rendering the list of ailments and directions for use 
illegible, and that the remedies in this condition were sold both to 
the wholesale and retail dealers and ultimately to buyers for use 
at cut rates. 



Mr. Justice Hughes, after making the above statement, de- 
livered the opinion of the court. 

The complainant, a manufacturer of proprietary medicines which 
are prepared in accordance with secret formulas, presents by its 
bill a system, carefully devised, by which it seeks to maintain cer- 
tain prices fixed by it for all the sales of its products both at whole- 
sale and retail. Its purpose is to establish minimum prices at which 
sales shall be made by its vendees and by all subsequent purchasers 
who trafiic in its remedies. Its plan is thus to govern directly the 
entire trade in the medicines it manufactures, embracing interstate 
commerce as well as commerce within the States respectively. To 
accomplish this result it has adopted two forms of restrictive agree- 
ments limiting trade in the articles to those who become parties to 
one or the other. The one sort of contract known as '^Consignment 
Contract — Wholesale/' has been made with over four hundred job- 
bers and wholesale dealers, and the other, described as "Retail 
Agency Contract/' with twenty-five thousand retail dealers in the 
United States. 

The defendant is a wholesale drug concern which has refused to 
enter into the required contract, and is charged with procuring 
medicines for sale at " cut prices" by inducing those who have made 
the contracts to violate the restrictions. The complainant invokes 



156 Industrial Combinations and Trusts 

the established doctrine that an actionable wrong is committed by 
one who mahciously interferes mth a contract between two parties 
and induces one of them to break that contract to the injury of the 
other and that, in the absence of an adequate remedy at law, equi- 
table relief will be granted. Angle v. Chicago, St. Paul, Minneapolis 
dr Omaha Railway Co., 151 U. S. i; Bitterman v. Louisville &* Nash- 
ville Railroad, 207 U. S. 205. 

The principal question is as to the vahdity of the restrictive 
agreements. 

PreUminarily there are opposing contentions as to the construc- 
tion of the agreements, or at least of that made with jobbers and 
wholesale dealers. The complainant insists that the "consignment 
contract" contemplates a true consignment for sale for account of 
the complainant, and that those who make sales under it are the 
complainant's agents and not its vendees. . . . 

There are certain allegations in the bill which do not accord with 
the complainant's argument. Thus it is alleged that it "has been 
and is the uniform custom" of the complainant "to sell said medi- 
cines, remedies and cures to jobbers and wholesale druggists, who 
in turn sell and dispose of the same to retail druggists for sale and 
distribution to the ultimate purchaser or consumer." And in set- 
ting forth the form of the agreement in question it is alleged that 
it was "required to be executed by all jobbers and wholesale drug- 
gists to whom your orator sold its aforesaid remedies, medicines 
and cures." .... 



The other form of contract, adopted by the complainant, while 
described as a "retail agency contract," is clearly an agreement 
looking to sale and not to agency. The so-called "retail agents" 
are not agents at all, either of the complainant or of its consignees, 
but are contemplated purchasers who buy to sell again, that is, 
retail dealers. It is agreed that they may purchase the medicines 
manufactured by the complainant at stated prices 



It will be noticed that the "retail agents" are not forbidden to 
sell either to wholesale or retail dealers if these are "accredited 
agents" of the complainant, that is if the dealers have signed either 
of the two contracts the complainant requires. But the restriction 
is intended to apply whether the retail dealers have bought the 



Factors' Agreements 157 

goods from those who held under consignment or from other dealers, 
wholesale or retail, who had purchased them. And in which way 
the ''retail agents" who supphed the medicines to the defendant, 
had bought them is not shown. 

The bill asserts complainant's "right to maintain and preserve 
the aforesaid system and method of contracts and sales adopted and 
estabhshed by it." It is, as we have seen, a system of interlock- 
ing restrictions by which the complainant seeks to control not 
merely the prices at which its agents may sell its products, but the 
prices for all sales by all dealers at wholesale or retail, whether pur- 
chasers or subpurchasers, and thus to fix the amount which the 
consumer shall pay, eliminating all competition 



But it is insisted that the restrictions are not invalid either at 
common law or under the act of Congress of July 2, 1890, c. 647, 
26 Stat. 209, upon the following grounds, which may be taken to 
embrace the fundamental contentions for the complainant: (i) 
That the restrictions are valid because they relate to proprietary 
medicines manufactured under a secret process; and (2) that, apart 
from this, a manufacturer is entitled to control the prices on all 
sales of his own products. 

First: The first inquiry is whether there is any distinction, with 
respect to such restrictions as are here presented, between the case 
of an article manufactured by the owner of a secret process and that 
of one produced under ordinary conditions. The complainant 
urges an analogy to rights secured by letters patent 

But whatever rights the patentee may enjoy are derived from 
statutory grant under the authority conferred by the Constitution. 
This grant is based upon pubhc considerations. The purpose of 
the patent law is to stimulate invention by protecting inventors for 
a fixed time in the advantages that may be derived from exclusive 
manufacture, use and sale 

The complainant has no statutory grant. So far as appears, 
there are no letters patent relating to the remedies in question. 
The complainant has not seen fit to make the disclosure required 
by the statute and thus to secure the privileges it confers. Its 
case lies outside the policy of the patent law, and the extent of the 
right which that law secures is not here involved or determined. 



158 Industrial Combinations and Trusts 

Second. We come, then, to the second question, whether the 
complainant, irrespective of the secrecy of its process, is entitled 
to maintain the restrictions by virtue of the fact that they relate 
to products of its own manufacture. 

The basis of the argument appears to be that, as the manufac- 
turer may make and sell, or not, as he chooses, he may affix condi- 
tions as to the use of the article or as to the prices at which pur- 
chasers may dispose of it. The propriety of the restraint is sought 
to be derived from the liberty of the producer. 

But because a manufacturer is not bound to make or sell, it 
does not follow that in case of sales actually made he may impose 
upon purchasers every sort of restriction 

Nor can the manufacturer by rule and notice, in the absence of 
contract or statutory right, even though the restriction be known to 
purchasers, fix prices for future sales. It has been held by this 
court that no such privilege exists under the copyright statutes, 
although the owner of the copyright has the sole right to vend 
copies of the copyrighted production. Bobhs-MerrillCo. v. Straus, 
210 U. S. 339. 

. . Whatever right the manufacturer may have to project his 
control beyond his own sales must depend, not upon an inherent 
power incident to production and original ownership, but upon 
agreement. 

The present case is not analogous to that of a sale of good will, 
or of an interest in a business, or of the grant of a right to use a 
process of manufacture. The complainant has not parted with any 
interest in its business or instrumentalities of production. It has 
conferred no right by virtue of which purchasers of its products 
may compete with it. It retains complete control over the busi- 
ness in which it is engaged, manufacturing what it pleases and 
fixing such prices for its own sales as it may desire. Nor are we 
dealing with a single transaction, conceivably unrelated to the 
public interest. The agreements are designed to maintain prices, 
after the complainant has parted with the title to the articles, and 
to prevent competition among those who trade in them. 

But agreements or combinations between dealers, having for 
their sole purpose the destruction of competition and the fixing of 
prices, are injurious to the pubUc interest and void. They are not 



Factors' Agreements 159 

saved by the advantages which the participants expect to derive 

from the enhanced price to the consumer 

The complainant's plan falls within the principle which condemns 
contracts of this class. It, in effect, creates a combination for the 
prohibited purposes. No distinction can properly be made by 
reason of the particular character of the commodity in question. 
It is not entitled to special privilege or immunity. It is an article 
of commerce and the rules concerning the freedom of trade must be 
held to apply to it. Nor does the fact that the margin of freedom 
is reduced by the control of production make the protection of 
what remains, in such a case, a negligible matter. And where 
commodities have passed into the channels of trade and are owned 
by dealers, the validity of agreements to prevent competition and 
to maintain prices is not to be determined by the circumstance 
whether they were produced by several manufacturers or by one, 
or whether they were previously owned by one or by many. The 
complainant having sold its product at prices satisfactory to it- 
self, the public is entitled to whatever advantage may be derived 
from competition in the subsequent traffic. 



CHAPTER VIII 
INTERNATIONAL AGREEMENTS 

NOTE 

Comparatively speaking, international agreements have been 
rare in the combination and trust movement. On this account, 
if for no other reason, those that have been made are of pecuHar 
interest. 

It is a rather remarkable coincidence that the two most famous 
international agreements should have been brought into being by 
identical sets of circumstances. In the case of the tobacco combi- 
nation, the American manufacturers invaded the territory across 
the water. In the case of the explosives trade, the situation was 
exactly the reverse, and the foreign companies were the aggressors. 
In each case, the outcome was the adoption of an international 
agreement, drafts of which are given below. 

In the nineties the American Tobacco Company estabhshed a 
depot in London, England. In 1901, this company with a view to 
purchase, opened negotiations with Ogden's (Limited), one of the 
largest tobacco concerns in Great Britain. By the end of September 
of that year substantially all the outstanding stock of Ogden's had 
been acquired. This purchase alarmed the British Manufacturers, 
and thirteen of the largest concerns in England united to form the 
Imperial Tobacco Company. This organization began an active 
campaign to check the invasion inaugurated by the American 
Tobacco Company, and threatened, as a part of their program, to 
invade the territory on our side of the Atlantic. The upshot of the 
matter was an agreement, embodied in two documents, which was 
made on September 27, 1902. 

In 1897, certain foreign manufacturers of black powder, detona- 
tors and high explosives, began the erection of factories in James- 
burg, N. J. intending to enter into competition with the explosives 
combination which at that time existed in the United States. 
Representatives of the latter visited Europe, toward the close of 
1897, and began negotiations with the foreign manufacturers who 

160 



International Agreements i6i 

had begun factories in the United States. A draft of an agreement 
embodying the result of these negotiations was ratified by the 
American Companies. This agreement has been variously styled 
the London Agreement, Jamesburg Agreement, International 
Agreement, and European Agreement. It was dated October 26, 
1907, and is probably the most interesting single document among 
the many which the industrial combination and trust movement 
has produced. Another international agreement that has only 
recently come to light is the A. J. A. G. Agreement in the alumi- 
num trade, excerpts from which form the fourth exhibit of this 
chapter. — Ed. 

Exhibit i 

agreement of the AMERICAN TOBACCO COMPANY INTERESTS AND 
THE IMPERIAL TOBACCO COMPANY, LIMITED, RELATIVE TO THE 
LIMITATION OF THE SPHERE OF THE OPERATION OF EACH, AND 
THE TRANSFER OF OGDEN'S LIMITED ^ 

An agreement made the twenty-seventh day of September, one 
thousand nine hundred and two, between Ogden's Limited, being 
a company duly incorporated under English law (hereinafter re- 
ferred to as the "Ogden Company"), of the first part; The Ameri- 
can Tobacco Company, a corporation organized and existing under 
and by ^/irtue of the laws of the State of New Jersey, one of the 
States of the United States, of America (hereinafter referred to 
as the "Amxcrican Company"), of the second part; Continental 
Tobacco Company, a corporation organized and existing under 
and by virtue of the laws of the said State of New Jersey (herein- 
after referred to as the '' Continental Company"), of the third part; 
American Cigar Company, a corporation organized and existing 
under and by virtue of the laws of the said state of New Jersey 
(hereinafter referred to as the "Cigar Company"), of the fourth 
part; Consolidated Tobacco Company, a corporation organized 
and existing under and by virtue of the said laws of the said State 
of New Jersey (hereinafter referred to as the "Consolidated Com- 
pany"), of the fifth part; British Tobacco Company, Limited, 
being a company incorporated under English law (hereinafter 
referred to as the "British Company"), of the sixth part; and the 
Imperial Tobacco Company (of Great Britain and Ireland), Lim- 

^ Report of the Commissioner of Corporations on the Tobacco Industry, 
Exhibit No. i, Part I, pp. 431 ff. 



1 62 Industrial Combinations and Trusts 

ited, a corporation incorporated under English law (hereinafter 
referred to as the "Imperial Company"), of the seventh part. 



14. Each of the parties hereto of the first six parts for itself and 
not the one for any others agrees and shall covenant with the Im- 
perial Company that the covenanting party will not at any time 
after the transfer day, except as hereinafter expressly excepted, 
either solely or jointly with any other person or persons, company 
or companies, directly or indirectly carry on or be employed, en- 
gaged, or concerned, or interested in the business in the United 
Kjngdom of a tobacco manufacturer, or in any dealing in tobacco 
or its products therein, or sanction the use of its name in connec- 
tion with any such business therein, save so far as the covenanting 
company, shall, as a member of the Imperial Company or as a mem- 
ber of any company manufacturing cigars in the United States or 
of any other companies formed or to be formed with the concur- 
rence of the Imperial Company, be interested in the business 
thereof, or through, or in connection with the Imperial Company, 
as hereinafter provided. The said covenanting parties will procure 
the following directors or some or one of them, namely, James 
Buchanan Duke, Benjamin Newton Duke, Thomas Fortune Ryan, 
John Blackwell Cobb, Williamson Whitehead Fuller, William 
Rees Harris, Percival Smith Hill, and Caleb Cushing Dula, and will, 
respectively, use their best endeavors to procure such other direc- 
tors as shall be required by the Imperial Company to enter into a 
covenant with the Imperial Company similar to that referred to 
in the preceding part of this clause. 

15. The Imperial Company similarly agrees and shall covenant 
with the American Company, the Continental Company, the Cigar 
Company, and the Consolidated Company, that the Imperial 
Company will not at any time after the transfer day, except as 
hereinafter expressly excepted, either solely or jointly, with any 
other person or persons, company or companies, directly or indi- 
rectly, carry on or be employed, engaged, concerned, or interested 
in the business in the United States of a tobacco manufacturer or 
in any dealing in tobacco or its products therein, or sanction the 
use of its name in connection with any such business therein save 
as far as the Imperial Company shall, as a member of any other 
company formed or to be formed with the concurrence of the Ameri- 
can Company, the Continental Company, the Cigar Company, or 



International Agreements 163 

the Consolidated Company, be interested in the business thereof, 
and save and except that the Imperial Company shall be at liberty 
to buy and treat tobacco leaf and other materials in the United 
States for the purpose of its business, and save and except such 
business as shall be carried on through or in connection with the 
American Company, the Continental Company, the Cigar Com- 
pany, or the Consolidated Company as hereinafter provided, the 
Imperial Company will procure the following of its directors, viz.. 
Sir WiUiam Henry Wills, Henry Overton Wills, Sir Edward Payson 
Wills, Sir Frederick Wills, George Alfred Wills, Henry Herbert 
Wills, Walter Melville Wills, Charles Edward Lambert, John 
Dane Player, Walter Butler, William Goodacre Player, and William 
Ruddell Clarke, and will use its best endeavors to procure such 
other of its directors as shall be required by the American Company, 
the Continental Company, the Cigar Company, and the Consoli- 
dated Company to enter into a covenant similar to that referred to 
in the preceding part of this clause. 

16. Forthwith, or as soon as may be after the transfer day, the 
Imperial Company shall duly appoint to its board three (3) direc- 
tors, nominated by the Ogden Company, subject to their acquiring 
the necessary qualifications, and the directors so appointed shall 
be reelected at the next ordinary general meeting and shall be classi- 
fied so that only a due proportion of them shall retire in each year. 

17. The export business of the Ogden Company hereinbefore 
excluded from the operation of this contract is to be the subject 
of an agreement entered into contemporaneously with this agree- 
ment, and providing for the transfer to a separate company of the 
export business from the United Kingdom (except to the United 
States) not only of the Ogdens Company, but also of the Imperial 
Company and of Salmon & Gluckstein, Limited, and the export 
business from the United States of the American Company, the 
Continental Company, and the Cigar Company (except to the 
United Kingdom) , which agreement has been already prepared and 
is executed contemporaneously with this agreement. For the pur- 
pose of construing this agreement the export business of the said 
several companies shall be deemed to be herein defined in the same 
manner as in the said contemporaneous agreement. The "United 
Kingdom" and the "United States" are also, respectively, to be 
deemed to be defined as defined in the same agreement. 

18. From and after the date of transfer, subject to agreements 
already existing between the Imperial Company and its present 



164 Industrial Combinations and Trusts 

agents, neither the Imperial Company nor Salmon & Gluckstein, 
Limited, shall sell or consign any tobacco products to any person, 
firm, or company "within the United States except the American 
Company, or persons or companies designated by it, and on the 
other hand the American Company, the Continental Company, 
and the Cigar Company, and the ConsoHdated Company, respec- 
tively, shall not sell or consign any tobacco products to any person, 
firm, or company in the United Kingdom except the Imperial Com- 
pany, or any persons or companies designated by it, the intention 
being that the American Company or its nominees shall be the sole 
customer of the Imperial Company and of Salmon & Gluckstein, 
Limited, in the United States, and that the Imperial Company or 
its nominees shall be the sole customer of the American Company, 
the Continental Company, and the Cigar Company in the United 
Kingdom. None of the parties shall sell any tobacco products to 
any person, firm, or company whom the^v^ have reason to beheve 
vdll export the same to the territory in which the seller has agreed 
not to sell such goods as herein pro\dded. 

19. For American goods sold to the Imperial Company or its 
nominees for sale in the United Kingdom in pursuance of the pre- 
ceding clause the Imperial Company shall pay the cost of manu- 
facture and packing of such goods (but not including any expenses 
of advertising and selling) plus ten per cent (10 per cent), and 
shall also pay freights, customs charges and duties, and for goods 
of the Imperial Company and of Salmon & Gluckstein, Limited, 
sold by them to the American Company, the Continental Com- 
pany, or the Cigar Company, for sale viithin the United States, the 
American Company, the Continental Company, or the Cigar Com- 
pany, as the case may be, shall pay the cost of the manufacture 
and packing thereof (but not including any expenses of advertising 
or selling) plus ten per cent (10 per cent), and shall also pay freights, 
customs charges, and duties. In all cases of sales under this clause 
the invoices of the respective vendors shall be final and binding as to 
cost. The Imperial Company shall be empowered by the American 
Company and the Continental Company to manufacture their 
brands within the United Kingdom for sale therein, and the Ameri- 
can Company, the Continental Company, and the Cigar Company 
shall be empowered to manufacture the brands of the Imperial Com- 
pany in the L^nited States for sale therein, and each party shall 
manufacture the brands of the other party upon recipes and form- 
ula to be supplied by the other. 



International Agreements 165 

20. As earJy as practicable and subject to existing contracts and 
obligations of the companies manufacturing and selling the cigars 
and cigarettes hereinafter referred to, the American Company, the 
Continental Company, and the Cigar Company will appoint or 
procure the appointment of the Imperial Company sole agent for 
the sale within the United Kingdom of Havana and Porto Rico 
cigars and Havana and Porto Rico cigarettes directly or indirectly 
controlled by the American Company, the Continental Company, 
and the Cigar Company, and such agency shall be upon the terms 
of the Imperial Company receiving a net commission of seven and 
one-half per cent (y-J^ per cent) upon the Havana and Porto Rico 
prices, respectively, and being allowed three months' credit for pay- 
ment of the invoice prices less such y-j/^ per cent and the Havana 
and Porto Rico prices charged the Imperial Company shall, from 
time to time and at all times, be as low as the prices charged by the 
American Company, the Continental Company, and the Cigar 
Company, or parties controlled by them, for similar cigars and 
cigarettes sold to their most-favored customers, subject only to the 
exception that if at any time the prices of cigars or cigarettes sold 
to any country not affecting British trade shall be temporarily 
reduced for the purposes of competition, such local and temporary 
reduction is not to be taken into account for the purpose of fixing 
the price of cigars and cigarettes sold to the Imperial Company. 
If and so far as the control of any other cigar trade not hereinbefore 
provided for is now possessed or shall be acquired by the American 
Company, the Continental Company, and the Cigar Company, or 
any of them, a similar agency is to be given to the Imperial Com- 
pany in respect thereof. The Imperial Company shall not (except 
to complete any other contract already made) handle or sell any 
other Havana or Porto Rico cigars and cigarettes than those of the 
American Company, the Continental Company, and the Cigar 
Company, for which the Imperial Company holds the aforesaid 
agency, and a similar provision shall apply to any other cigars or 
cigarettes for which the aforesaid agency may be hereafter granted, 
and the Imperial Company shall use its best efforts and endeavors 
to promote and enlarge the sales of all such cigars and cigarettes 
within the United Kingdom, and provided the Imperial Company 
maintains a sale of the Havana cigars or cigarettes included in 
the agency hereinbefore provided for equal to not less than seventy- 
two per cent (72 per cent) of the total annual importations into 
the United Kingdom, duty paid, of cigars and cigarettes made in 



i66 Industrial Combinations and Trusts 

Cuba, the American Company, and the Cigar Company, and the 
Continental Company shall not be entitled to call in question the 
efforts and endeavors of the Imperial Company hereinbefore re- 
quired: Provided always, That the percentage to be maintained by 
the Imperial Company shall be ascertained upon the average of 
three years. The Imperial Company shall sell the cigars and ciga- 
rettes from time to time falling within the said agency at prices not 
exceeding their cost to the Imperial Company with the addition of 
freights, railway charges, packages, customs duties, and custom 
charges, and the said commission of y-J^ per cent. The American 
Company, the Continental Company, and the Cigar Company will 
not knowingly supply cigars or cigarettes to be transshipped or 
indirectly imported into the United Kingdom. The aforesaid 
proportion of 72 per cent has been based upon the belief and as- 
sumption that the parties hereto of the second, third, fourth, and 
fifth parts or some or one of them control or will shortly control 
not less than 80 per cent of the aforesaid annual importation, and 
if it shall hereafter appear that the proportion thereof actually con- 
trolled by the said parties is less than 80 per cent, then in such case 
the said proportion of 72 per cent shall be correspondingly re- 
duced. 

21. The Imperial Company shall cause Salmon & Gluckstein, 
Limited, and A. I. Jones & Company, Limited, and any other com- 
panies, firms, or persons from time to time controlled by it (subject 
to the performance of any prior contracts), to purchase their cigars 
of any brands comprised in the said agency through the Imperial 
Company as agent under the last preceding clause. 

22. The American Company, the Continental Company, the 
Cigar Company, and the Consolidated Company, together with 
their directors, entering into the covenant aforesaid, are to give to 
the Imperial Company in the United Kingdom the full benefit of 
their good will and support, and on the other hand the Imperial 
Company, together with its directors, entering the covenant afore- 
said, are to give the American Company, the Continental Company, 
and the Cigar Company in the United States the full benefit of 
their good will and support, and with a view to giving further ef- 
fect to the intention of the parties as in this clause hereinbefore 
expressed the allottees of the said 1,500,000 ordinary shares of 
the Imperial Company are not to sell or transfer more than 10 per 
cent of the said shares within the period of five (5) years from the 
date of their allotment, if and so long as the present directors of 



International Agreements 167 

the Imperial Company, or some of them, shall hold not less than 
3,000,000 ordinary shares of the Imperial Company. 

23. This agreement is to be construed and take effect as a con- 
tract made in England and in accordance with the law of England, 
but to the intent that any of the parties may sue in its own country. 
The Imperial Company is always to have an agent for service in the 
United States, and each of them, the American Company, the Con- 
tinental Company, the Cigar Company, and the Consolidated Com- 
pany, is always to have an agent for service in England, and service 
of any such agent of any notice, summons, order, judgment, or 
other process or document in respect of this agreement, or any mat- 
ter arising thereout, shall be deemed to be good service on the party 
appointing such agent, and as regards each of the said parties 
whilst and whenever there is no other agent the following shall be 
considered to be the agents of the respective parties duly appointed 
under this clause, namely: For the Imperial Company, Samuel 
Untermeyer, of New York City, American counsel; and for the 
American Company, the Continental Company, the Cigar Com- 
pany, and the Consolidated Company, Joseph Hood, 41 Castle 
street, Liverpool, sohcitor. Notice of any appointment under this 
clause shall be from time to time given by the appointor to the 
other parties hereto. The mode of service sanctioned by this 
clause is not in any way to prejudice or preclude any mode 
of service which would be allowable if this clause were 
omitted. 

24. So far as it is necessary for the purpose of making the issue of 
ordinary shares hereinbefore mentioned the Imperial Company 
shall forthwith take the necessary steps for increasing its capital by 
the creation of an adequate number of ordinary shares (half pre- 
ferred and half deferred) which shall rank pari passu with and shall 
be of the same respective classes and confer the same rights and 
privileges as the 5,000,000 preferred ordinary shares, and the 
5,000,000 deferred ordinary shares forming part of the original 
capital of the Imperial Company. 

In witness whereof the said parties of the first, second, sixth, and 
seventh parts have hereunto aflSxed their common seals, and the 
said parties of the third, fourth, and fifth parts have executed this 
agreement under the hand of their respective presidents the day and 
year first above written. 

(Signatures). 



1 68 Industrial Combinations and Trusts 

Exhibit 2 

agreement made between the AMERICAN TOBACCO COMPANY 
interests AND THE IMPERIAL TOBACCO COMPANY, LIMITED, REL- 
ATIVE TO THE CONTROL OF BUSINESS BY THE BRITISH-AMERICAN 
TOBACCO COMPANY, LIMITED i 

An agreement made the twenty-seventh day of September, one 
thousand nine hundred and two, between The Imperial Tobacco 
Company (of Great Britain and Ireland), Limited, being an Eng- 
lish company duly incorporated under English law (hereinafter 
referred to as the ''Imperial Company"), of the first part; Ogden's 
Limited, also being a company incorporated under EngHsh law 
(hereinafter referred to as the "Ogden Company"), of the second 
part; The American Tobacco Company, a corporation organized 
and existing under and by virtue of the laws of the State of New 
Jersey, one of the States of the United States of America (here- 
inafter referred to as the "American Company"), of the third 
part; Continental Tobacco Company, a corporation organized and 
existing under and by virtue of the laws of the said State of New 
Jersey (hereinafter referred to as the "Continental Company"), 
of the fourth part; American Cigar Company, a corporation or- 
ganized and existing under and by virtue of the laws of the said 
State of New Jersey (hereinafter referred to as the "Cigar Com- 
pany"), of the fifth part; ConsoHdated Tobacco Company, a cor- 
poration organized and existing under and by virtue of the laws 
of the said State of New Jersey (hereinafter referred to as the 
"Consohdated Company"), of the sixth part; and Williamson 
Whitehead Fuller and James Inskip, on behalf of a company in- 
tended to be formed under the companies' acts, 1862 to 1900, with 
the name of " British- American Tobacco Company, Limited" 
(hereinafter referred to as the " British- American Company"), 
of the seventh part. 

Whereas the parties hereto of the first five parts now respec- 
tively carry on business as tobacco manufacturers and other an- 
cillary businesses, which comprise as to the parties hereto of the 
first and second parts, businesses carried on within the United 
Kingdom of Great Britain and Ireland and export businesses as 
hereinafter defined, and as to the parties hereto of the third, fourth, 

^ Report of the Commissioner of Corporations on the Tobacco Industry, 
Exhibit No. 2, Part i, pp. 440 ff. 



International Agreements 169 

and fifth parts, businesses carried on within the United States of 
America, and export businesses as also hereinafter defined, and 
proposals have been made for amalgamating the said export busi- 
nesses by transfer thereof to the British- American Company upon 
the terms and conditions hereinafter expressed. 
Now therefore it is hereby agreed as follows: 

1. In this agreement the words "United Kingdom" mean Great 
Britain and Ireland and the Isle of Man. 

The words ''United States" mean the United States of America 
as now constituted — Cuba, Porto Rico, the Hawaiian Islands, and 
the Philippine Islands. 

The words "export business" mean the manufacture of and 
dealing in tobacco and its products in any country or place outside 
the United Kingdom and the United States and the manufacture 
of and dealing in tobacco and its products within the United King- 
dom for export to any other country except the United States, and 
the manufacture of and dealing in tobacco and its products in the 
United States (except in Cuba, Porto Rico, the Hawaiian Islands, 
and the Philippine Islands) for the purpose of export to any other 
country except the United Kingdom, and the manufacture and 
selling in the United Kingdom and the United States, respectively, 
of tobacco to be supplied to ships in port for the purpose of ships' 
stores. 

2. The parties hereto of the first five parts shall sell and the 
British- American Company shall purchase the export businesses 
as hereinbefore defined of the parties of the first five parts, and the 
good will appertaining thereto, which shall include formulas and 
recipes of preparation, treatment, and manufacture, as well as 
license to use patent rights, trade-marks, brands, licenses, and 
other exclusive rights and privileges for the purpose of such ex- 
port business, and shall also include all stock or shares in com- 
panies incorporated in countries foreign to the United Kingdom 
and the United States owned or held by the parties of the first 
six parts, including all shares of the American Company in Georg 
A. Jasmatzi Company (of Dresden), and all shares of the Im- 
perial Company in W. D. & H. O. Wills (AustraUa), Limited, at 
the price of two million eight hundred and twenty thousand pounds 
(£2,820,000), of which two equal third parts, or one million eight 
hundred and eighty thousand pounds (£1,880,000), shall be pay- 
able to the Ogden Company, the American Company, the Conti- 
nental Company, the Cigar Company, and the Consolidated 



170 IXDL'5TRLA.L COMEIN'ATIONS AND TRUSTS 

Company, or some of them, in such proportions as they shall mu- 
tually agree and as shall be indicated in ^Titing under the hands 
of their respective presidents or chairmen as the case may be, and 
one-third, or nine hundred and forty thousand pounds (£940,000), 
shall be payable to the Imperial Company, and the said prices 
shall be satisfied by the allotment to the parties entitled thereto 
of fully paid-up ordinary' shares in the British- American Company 
to be treated as of par value. The said sale and purchase shall 
take effect as to the Ogden Company on the 30th September, 
1902 (hereinafter referred to as ''the Ogden transfer day"'), and 
as to the parties hereto of the first, third, fourth, fifth, and sixth 
parts on the 31st October, 1902 (hereinafter referred to as '''the 
Imperial and .\merican transfer day''). 

3. In addition to the ordinary' shares by the preceding paragraph 
agreed to be allotted in payment of the said purchase money, the 
Imperial Company shaU take and pay cash for three hundred 
thousand (300,000) additional, one-pound ordinar}' shares, and the 
American Company, the Continental Company, the Cigar Com- 
pany, and the Consohdated Company, or some or one of them, 
shall take and pay cash for sLx hundred thousand (600,000) ad- 
ditional one-poimd ordinary- shares in the British-.\merican Com- 
pany. Limited, and such shares shall be alloted to such parties at 
once. 

4. The Imperial Company and the Ogden Company wiU, re- 
spectively, seU to the British- American Company their several 
lands, buildings, and hereditaments used as export factories, and 
the plant and equipment and stock in trade at the date of transfer 
forming a part of the said export businesses or undertakings, and 
the .American Company, the Continental Company, and the Cigar 
Company will seU to the British-.\merican Company factories for 
export business and the plant and equipment and stock in trade at 
the date of transfer forming a part of the said export businesses 
or undertakings. The factories of the said respective parties em- 
ployed for export purposes shaU, in the case of the Imperial Com- 
pany, include the export factory- of the Imperial Company formerly 
belonging to W. D. & H. 0. ^A'ills. Limited, at Ashton Gate, Bris- 
tol, and the land and cottages held therewith: the leasehold export 
factory formerly belonging to !Messrs. Lambert & Butler, Limited, 
in London; and the two export factories formerly belonging to 
the Richmond Cavendish Company, Limited, at Liverpool; and 
the cigarette factory of the Imperial Company formerly belonging 



International Agreements 171 

to W. D. & H. O. Wills, Limited, at Sydney, in the Commonwealth 
of Australia. The export factories of the Ogden Company will 
include the bonded or export factory of the Ogden Company in 
Cornwallis street, Liverpool, and a factory at Sydney aforesaid. 
The export factories of the American Company, the Continental 
Company, and the Cigar Company will include such suitable fac- 
tories as shall be designated by these companies, or some or one of 
them, so that the price thereof with their plant and equipment as 
hereinafter fixed shall not exceed the aggregate price of the fac- 
tories, land, and cottages with their plant and equipment to be 
sold by the Imperial Company as before stated. All the said fac- 
tories and the plant and equipment used in connection with the 
same are to be taken at the value now standing in the books of the 
respective vendors thereof, and the stock in trade and materials 
hereby agreed to be sold are to be taken at cost. The respective 
values shall be paid by the British- American Company to the 
respective vendors in cash. As part of the export business and good 
will to be sold by the Imperial Company to the British- American 
Company the export business of Salmon & Gluckstein, Limited, 
shall be included, and the Imperial Company hereby undertakes 
to procure the transfer of the same to the British- American Com- 
pany, but this shall not be deemed to include any lands, buildings, 
or hereditaments. The said export business shall also include all 
the interest of the Imperial Company in a factory at Shanghai 
recently purchased by it and or in the American Cigarette Com- 
pany of Shanghai. 

5. The British- American Company shall be entitled to purchase 
at not exceeding cost thereof to its vendor any export business 
hereafter acquired by any of the parties hereto of the first six parts, 
as well as any shares in any companies incorporated in countries 
foreign to the United Kingdom and the United States acquired 
by any of said parties, and the export business and the assets em- 
ployed in such business of any company the control of which shall 
be hereafter acquired by any of said parties, as well as any shares 
in companies engaged in export business which may be held by 
such controlled companies acquired by any of the parties of the 
first six parts as aforesaid. 

6. The British- American Company shall have the right to use 
in its export business, as hereinbefore defined, any brands and 
trade-marks now owned or hereafter acquired or adopted by any 
of the parties hereto of the first six parts. 



172 Industrial Combinations and Trusts 

7. The sale and purchase of the said export business hereinbe- 
fore agreed to be made are subject to and with the benefit of all 
contracts heretofore made by the respective parties hereto of the 
first six parts, with their agents or other persons interested in the 
said businesses so far as such contracts are now in force, save and 
except that if the Imperial Company is under an obligation to 
buy the shares of G. F. Todman in W. D. & H. O. Wills (Austraha), 
Limited, at any price not approved by the British- American Com- 
pany, such obligation is not agreed to be undertaken by that com- 
pany. The Japanese stockholders in Murai Bros. Company, 
Limited, shall have the right to take from the British- American 
Company on or before January i, 1904, by paying par therefor, 
with interest thereon at the rate of six per cent per annum (less 
any dividends received) from the date of their purchase by the 
American Company until payment, all issued stock sold by the 
American Company to the British- American Company in excess 
of sixty per cent of the total capital stock of Murai Bros. Company, 
Limited. 

8. The dividends or proportion of dividends upon shares hereby 
agreed to be sold and the profits of each export business hereby 
agreed to be sold shall, up to the respective transfer days, belong 
to the respective vendors of the same. 

9. The parties of the first five parts shall, respectively, clear the 
lands, buildings, and hereditaments hereby agreed to be sold of 
all mortgages, charges, and other incumbrances, and shall be en- 
titled to the proceeds of all book debts due to the said parties, 
respectively, on the respective transfer days, but for a period of three 
calendar months thereafter the British- American Company shall be 
authorized on behalf of these respective parties to collect and re- 
ceive such book debts, and the proceeds shall be from time to time 
paid over to the parties entitled thereto at the end of every 
month. 

10. The British- American Company shall undertake the ob- 
servance and performance of all covenants and conditions on the 
part of the lessee or tenant in any lease of or agreement relating 
to the lands, buildings, and hereditaments hereby agreed to be 
sold, and thenceforth on the part of the lessee or tenant to be ob- 
served and performed, and the British- American Company shall 
also, as from the same date, undertake the performance of all con- 
tracts bona fide entered into by the parties of the first five parts 
in the ordinary course of carrying on their export business and 



International Agreements 173 

particularly applicable thereto, and shall indemnify the parties 
of the first five parts against all proceedings, claims, and demands 
in respect thereof. 

11. All books of account of the parties of the first and second 
parts referring solely to the export businesses hereby agreed to be 
sold, and all books of reference to customers and other books and 
documents of the said parties relating solely to the said export busi- 
nesses (except the statutory and minute books, and any other books 
of a private nature) shall be delivered to the British- American Com- 
pany upon completion of the purchase, and the British- American 
Company shall thenceforth be entitled to the custody thereof and 
to the use thereof for the purpose of carrying on its business, but, 
nevertheless, the parties of the first and second parts shall have free 
access at all reasonable times to the said books and documents, 
or any of them, for any reasonable purpose, and to the temporary 
use of the same for the purpose of any legal proceedings. The 
parties of the third, fourth, and fifth parts shall deliver to the 
British- American Company a list of their respective customers 
for the export businesses hereby sold and any books used exclusively 
in connection with such business. 

12. The British- American Company shall from the time of any 
property being at its risk be entitled to the benefit of all current 
insurances, and the parties of the first five parts shall be entitled 
to repayment of a proportionate part of the premiums already paid 
for the unexpired portion of the current year of any policy, and all 
periodical payments shall be apportioned as from the respective 
transfer days hereinbefore mentioned. 

13. The purchases shall be completed on or before the ist day 
of January, 1903, in London, and the consideration for the same 
shall be paid or satisfied subject to the provisions of this agreement 
and thereupon and from time to time the parties of the first five 
parts shall execute and do all such assurances and things for vesting 
the said premises in the British- American Company and giving to 
it the full benefit of this agreement as shall be reasonably required. 

14. As regards any of the premises subject to mortgages which 
can not be paid off until after the time of completion, the parties 
of the first five parts shall, if so desired by the British- American 
Company, convey the said premises subject to the mortgages affect- 
ing the same, respectively, and the British- American Company 
shall retain out of the consideration aforesaid a sum sufficient to 
pay off and satisfy the claims under such mortgage. 



174 Industrial Combinations and Trusts 

15. In any and every case where any leaseholds hereby agreed 
to be sold, are only assignable with the consent of the landlords 
from whom the same respectively are held, the parties of the first 
five parts, or such of them as hold such leaseholds, shall use their 
best endeavors to obtain the requisite consent for the assignment 
to the British- American Company, and in any case where such 
consent can not be conveniently obtained the parties of the first 
five parts or such of them as hold such leaseholds as aforesaid shall 
execute a declaration of trust in favor of the British- American 
Company, or otherwise deal with the same as the British- American 
Company shall direct. 

16. The possession of the property hereby agreed to be sold by 
the Ogden Company shall be delivered to the British- American 
Company on the Ogden transfer day, and the possession of the 
properties hereby agreed to be sold by the parties hereto of the 
first, third, fourth, and fifth parts shall, subject as hereinafter 
mentioned, be delivered to the British- American Company on the 
Imperial and American transfer day, but if the said parties of the 
third, fourth, and fifth parts shall not be able to deliver possession 
on the last-mentioned transfer day, the said parties shall from such 
day until delivery of possession carry on and conduct their export 
business for the benefit of the British- American Company, and 
shall account to that company for all the profits arising therefrom, 
but the British- American Company shall pay interest at the rate 
of five per cent per annum on the purchase money from the transfer 
day until actual payment. 

17. For the purposes of title of the lands, buildings, and heredit- 
aments hereby agreed to be sold by the parties of the first and 
second parts, they shall, respectively, be deemed and taken to have 
entered into this contract with the British- American Company sub- 
ject to the terms and stipulations of the Liverpool public sale condi- 
tions so far as the same shall be applicable to a sale by private treaty. 

18. Each of the parties hereto of the first six parts hereby agrees 
and shall covenant with the British-American Company that the 
said covenanting party will not at any time after its transfer day, 
either solely or jointly with any other person, company, or firm, 
directly or indirectly, carry on or be employed, engaged, or con- 
cerned or interested in export business as defined in this agree- 
ment, except as it may be interested as a member of the British- 
American Company or of a company formed or to be formed with 
the concurrence of the British- American Company, and also except 



International Agreements 175 

so far as the parties of the third, fourth, fifth, and sixth parts may 
be interested as members of companies or firms engaged in export- 
ing cigars and cigarettes from Cuba, Porto Rico, the Hawaiian 
Islands, and or the Philippine Islands, and the British American 
Company hereby agrees and shall covenant with each of the parties 
hereto of the first six parts that the British- American Company 
will not at any time hereafter, either solely or jointly with any 
other person, firm, or company, directly or indirectly, carry on or 
be employed, engaged, concerned, or interested in the business of 
a tobacco manufacturer or in any dealing in tobacco or its products 
except in the manner and within the limits contemplated and 
authorized by this agreement. 

19. The British- American Company will, if and so long as there- 
unto required by the Imperial Company, manufacture in the United 
Kingdom such brands as the Imperial Company shall require for 
sale in the United Kingdom and for export to the United States, 
to be manufactured in bond, and the Imperial Company shall pay 
for tobacco manufactured pursuant to this clause the cost of man- 
facturing and packing, with an addition of 10 per cent upon such 
cost, and the Imperial Company shall also pay the duty. 

20. This agreement is to be construed and take effect as a con- 
tract made in England and in accordance with the law of England; 
but to the intent that any of the parties may sue in its own country, 
the Imperial Company is always to have an agent for service in 
the United States, and each of them, the American Company, the 
Continental Company, the Cigar Company, and the Consolidated 
Company, is always to have an agent for service in England, and 
service on any such agent of any notice, summons, order, judg- 
ment, or other process or document in respect of this agreement, 
or any matter arising thereout, shall be deemed to be good service 
on the party appointing such agent; and as regards each of the 
said parties whilst and whenever there is no other agent the fol- 
lowing shall be considered to be the agents of the respective parties 
duly appointed under this clause, namely: For the Imperial Com- 
pany, Samuel Untermeyer, of New York City, American counsel, 
and for the American Company, the Continental Company, the 
Cigar Company, and the Consolidated Company, Joseph Hood, 
41 Castle Street, Liverpool, solicitor. Notice of any appointment 
under this clause shall be from time to time given by the ap- 
pointer to the other parties hereto. The mode of service sanc- 
tioned by this clause is not in any way to prejudice or preclude 



176 Industrial Combinations and Trusts 

any mode of service which would be allowable if this clause were 
omitted. 

21. The validity of this agreement is not to be impeached on the 
ground that the vendors, as promoters or otherwise, stand in a 
fiduciary relationship to the British- American Company, and that 
the directors thereof being interested in the vendors' businesses do 
not constitute an independent board. Upon the adoption hereof 
by the British- American Company in such a manner as to render 
the same binding on that company in favour of the vendors, the 
said Williamson Whitehead Fuller and James Inskip shall be dis- 
charged from all liability hereunder. 

22. The cost of and incidental to the formation and registration 
of the British- American Company shall be borne by that company. 

In witness whereof the said parties of the first, second, and third 
parts have hereunto affixed their common seals, and the said parties 
of the fourth, fifth and sixth parts have executed this agreement 
under the hand of their respective presidents, and the parties of 
the seventh part have hereunto subscribed their names the day and 
year first before written. 

(Signatures.) 

Exhibit 3 



Agreement made this 26th day of October, 1897, between: 

Messrs. E. I. Du Pont de Nemours & Co., of Wilmington, Del.; 

Laflin and Rand Powder Company, of New York City; 

Eastern Dynamite Company, of Wilmington, Del.; 

The Miami Powder Company, of Xenia, Ohio; 

The American Powder Mills, of Boston, Mass. ; 

The Aetna Powder Company, of Chicago, 111. ; 

The Austin Powder Company, of Cleveland, Ohio; 

The California Powder Works, of San Francisco, Cal.; 

The Giant Powder Company, Consolidated, of San Francisco, 
Cal.; 

The Judson Dynamite and Powder Company, of San Fran- 
cisco, Cal.; 
(hereinafter collectively referred to as ^'the American Factories") 
of the one part, and 

^ United States of America v. E. I. du Pont de Nemours 6* Co. Government's 
Exhibit No. 119, Pet. Rec. Exhibits, Vol. 11, pp. 1123 ff. 



International Agreements 177 

The Vereinigte Koln-Rottweiler Pulverfabriken, of 
Cologne; 

The Nobel-Dynamite Trust Company, Limited, of London; 
(hereinafter collectively referred to as "the European Factories") 
of the other part. 

Whereas the parties hereto own or control a large number of 
companies and works engaged in the manufacture and trade of 
explosives, and whereas it has been deemed advisable to make 
arrangements, so as to avoid anything being done which would 
affect injuriously the common interest. 

It Has Therefore been Agreed as Follows: 

1. The word "Explosives" in this Agreement is to be under- 
stood as including detonators, black powder, smokeless sporting 
powder, smokeless military powder, and high explosives of all kinds. 

2. A list of all the companies and factories controlled by the 
American Factories directly or indirectly is to be prepared and 
handed by Messrs E. I. Du Pont de Nemours & Co., in duplicate 
to the European Factories at the time of the execution of this 
agreement, and the European Factories are to hand to Messrs. 
E. I. Du Pont de Nemours & Co. a complete list of the Companies 
controlled by them directly or indirectly when executing this Agree- 
ment. Should the period of control which any of the parties have 
over any company or factory be fixed by contract for a shorter 
time than the duration of this present Agreement, that fact shall 
be stated on such list, and it is understood that in the event of 
any renewal of such arrangement in such a manner as to extend 
the control over the period of the present Agreement, the Com- 
panies in question shall be bound to adhere to the terms hereof. 

The American Factories and the European Factories shall be 
bound to stipulate adherence to the present Agreement on the 
part of all and any Companies or Factories over which they now 
have control or may directly or indirectly obtain control during 
the continuance of this Agreement. 

3. Regarding Detonators it is agreed that the European Fac- 
tories shall abstain from erecting detonator works in the United 
States of North America. The works which are building at James- 
burg, New Jersey, are not to be completed, and the whole scheme 
as worked out by Mr. Miiller is to be abandoned. In consideration 
of this scheme being abandoned and the erection of the works being 



178 Industrial Combinations and Trusts 

stopped, the American Factories undertake to bear all expenses 
hitherto incurred in connection therewith, and they will, more- 
over, discharge the obligations which Mr. Muller has undertaken 
in connection with the above-mentioned scheme, with regard to 
which obligations a special subsidiary Agreement is to be made. 
And it is moreover agreed that the American Factories shall order 
and take from the European Factories, i. e., from The Rhenish 
WestphaHan Sprengstoff A. G. every year 5,000,000 Detonators 
at the following prices, viz.: — M. 11 for No. 3, M. 12 for No. 3 rim, 
M. 13 for No. 4, M. 15.50 for No. 5, M. 16.50 for No. 5 rim, M. 20 
for No. 6, and M. 21 for No. 6 rim, all these prices to be understood 
per 1,000 ex ship New York without duty. 

4. As regards Black Powder the American Factories bind them- 
selves not to erect factories in Europe, and the European Factories 
bind themselves not to erect factories in the United States of 
America. Both parties, however, are to be free to import into the 
other party's territory. 

5. As regards Smokeless Sporting Powder the American Fac- 
tories undertake not to erect factories in Europe, and the European 
Factories undertake not to erect factories in the United States of 
America; both parties, however, are to be free to import into the 
other party's territory. 

6. With regard to Smokeless Military Powder it is hereby agreed 
that the European Factories undertake not to erect any factory 
in the United States of America, and that the American Factories 
undertake not to erect any factories in Europe. 

Whenever the American Factories receive an enquiry for any 
Government other than their own, either directly or indirectly, 
they are to communicate with the European Factories through the 
Chairman appointed, as hereinafter set forth, and by that means 
to ascertain the price at which the European Factories are quoting 
or have fixed, and they shall be bound not to quote or sell at any 
lower figure than the price at which the European Factories are 
quoting or have fixed. Should the European Factories receive 
an enquiry from the Government of the United States of North 
America, or decide to quote for delivery for that Government, either 
directly or indirectly, they shall first in the like manner ascertain 
the price quoted or fixed by the American Factories and shall be 
bound not to quote or sell below that figure. 

7. With regard to High Explosives (by which all explosives fired 
by means of Detonators are to be understood), it is agreed that 



International Agreements 179 

the United States of North America, with their present or future 
territories, Possessions, Colonies, or Dependencies, the RepubHcs 
of Mexico, Guatemala, Honduras, Nicaragua, and Costa Rica, 
as well as the Republics of the United States of Columbia and 
Venezuela, are to be deemed the exclusive territory of the American 
Factories, and are hereafter referred to as "American Territory." 
All the countries in South America not above mentioned, as well 
as British Honduras and the Islands in the Caribbean Sea, which 
are not Spanish possessions, are to be deemed common territory, 
hereinafter referred to as "Syndicated Territory"; the rest of the 
world is to be exclusive territory of the European Factories, here- 
inafter referred to as "European Territory." The Dominion of 
Canada and the Islands appertaining thereto, as well as the Spanish 
possessions in the Caribbean Sea, are to be a free market unaffected 
by this Agreement. 

8. The American Factories are to abstain from manufacturing, 
selling, or quoting, directly or indirectly, in or for consumption 
in any of the countries of the European Territory, and the Euro- 
pean are to abstain in like manner from manufacturing, selling or 
quoting, directly or indirectly, in or for consumption in any of the 
countries of the American Territory. With regard to the Syndi- 
cated Territory neither party are to erect works there, except by 
a mutual understanding, and the trade there is to be carried on for 
joint account in the manner hereinafter defined. 

9. The American Factories shall forthwith designate in writing 
a Chairman and Vice-Chairman, who shall hold office as such until 
their respective successors shall be appointed by the party of the 
first part, and such Chairman, or in his absence such Vice-Chairman, 
shall be the authorized representative of the American Factories, 
to whom and through whom all communications, acts, and trans- 
actions in respect of this Agreement, unless otherwise stipulated, 
shall be had; and the European Factories shall likewise forthwith 
designate in writing a Chairman and Vice-Chairman, to whom 
shall be referred all matters which by terms of this contract are 
made referrable ^ to the Chairman representing the European Fac- 
tories. The said Chairman or Vice-Chairman shall jointly establish 
rules for the carrying out of the Syndicate arrangements hereinafter 
referred to. 

10. The Chairmen shall from time to time mutually agree upon 
a basis price for each market in the Syndicated Territory, such 

^Thus in original. — Ed, 



i8o Industrial Combinations and Trusts 

basis price to include cost of manufacture, freight, insurance, land- 
ing charges, magazine charges, and all other charges until delivery, 
including agency commission and the contribution towards the 
Common Fund hereinafter stipulated. 

The Chairmen shall likewise fix a selling price for each market, 
which is to be deemed a convention price, below which no sales are 
to effected, and the difference between the basis price and the sell- 
ing price is to be deemed the Syndicate profit, and to be divided in 
equal shares between the American Factories and the European 
Factories. 

Losses due to bad debts are to be borne by the parties effecting 
the sale. 

11. A common Syndicate Fund is to be constituted by a pay- 
ment of $1 per case of 75 per cent, dynamite, or per case of gelig- 
nite, gelatine dynamite, or blasting gelatine, and a payment of 
such portion of $1 as the percentage of nitro-glycerine on lower 
grade dynamites bears to 75 per cent, until such Fund reaches the 
amount of $50,000, when the contribution is to be reduced to one- 
half the above-mentioned rates. 

12. The Syndicate accounts, according to Clause 10, made up to 
31st December in each calendar year are to be handed in by both 
parties so as to reach the Chairman of the other party by the 15th 
March next ensuing, and the payments for the balance are to be 
made by the 30th June following, when the amount to be contrib- 
uted to the Common Fund shall likewise be paid. 

[In regard to Clause 12 of the Agreement, I have no objections at 
all to the extension of time whereat the accounts are to reach both 
parties; namely, to April 15th. of each year, instead of March 15th. 
as per Clause 12. — Letter April 11, 1899.] 

The Common Fund shall, as the Chairmen may decide, be in- 
vested in Government Securities, and it is from this Fund that any 
fine or fines hereinafter stipulated, not recovered from the parties, 
shall be taken. It shall likewise be admissible for the Chairmen to 
dispose of two-thirds of the Common Fund for the purpose of pro- 
tecting the common interest against outside competition. 

13. Any breach of this agreement shall be adjudicated upon by 
the Chairmen, and if they cannot agree they shall appoint an 
umpire. For the guidance of the Chairmen and umpire it is agreed 
that, should either of the parties erect factories in a country re- 
served to the other, the liquidated damages shall not be fixed lower 
than £10,000. 



International Agreements i8i 

Should either party trade in the territory of the other it shall be 
admissible for the Chairmen to absolve them of any accidental 
breach, but if an intentional breach shall be proved, the fine shall 
be the invoice value of the goods suppHed. No restriction is placed 
on the decision of the Chairmen as to the penalty to be imposed for 
intentional underselling in one of the markets of the Syndicate 
territory. 

14. It is intended that in the Syndicate markets the arrangement 
should resemble as far as possible the convention arrangements 
hitherto had by the Europeans, where the Agents meet from time 
to time, and come to decisions within the limits of powers given to 
them, or where they meet in order to make recommendations to 
their principals. 

15. The Chairmen both agreeing have full powers to vary the 
Syndicate arrangements as they may deem expedient from time to 
time in order to meet outside competition and to regulate business 
for the best in the interest of the parties concerned, and they shall 
likewise have the power under exceptional circumstances of author- 
ising sales in the prohibited territories. 

16. With regard to the markets in the European territory in 
which the American Factories have already done business, and from 
which, in accordance with the stipulations of this Agreement, they 
are to retire, as well as the markets of the American territory in 
which the European Factories have already done business, and from 
which they are, according to the stipulations of this Agreement, to 
retire, the following is agreed: 

Agents are as far as possible to be retained by the party who is 
henceforward to do the business in the market in question. 

Magazines are in a like manner to be taken over at their present 
value to be determined by mutual agreement or arbitration. 

Stocks, if in good merchantable condition, are to be taken over at 
full cost, i. e., the amount which the goods at present cost with 
accumulated charges. 

17. Nothing herein contained shall be construed to prevent either 
of the parties hereto from carrying out any contracts for the sale of 
their products which have been entered into in good faith prior to 
the isth of July, 1897. Contracts made after the said date shall be 
transferred to the party by whom the business shall be transferred 
to the party by whom the business shall henceforth be done in the 
market in question. 

18. This Agreement is to be in force for 10 years, beginning from 



i82 Industrial Combinations and Trusts 

the i5tli of July, 1897, subject to written notice being given six 
months prior to the 15th July, 1907. In the absence of notice this 
Agreement is to continue thereafter from year to year until such six 
months' notice of intended termination is given. 

19. Should any difference or dispute arise between the parties 
hereto, touching this Agreement, or any clause, matter, or thing 
relating thereto, or as to the rights, duties, or liabilities of any of the 
parties hereto, the same shall be referred to the Chairmen, who shall 
arbitrate thereon, and their award shall be final. Should they not 
agree they shall appoint an Umpire whose award shall be final. In 
all cases in which the Chairmen disagreeing select an Umpire, the 
following provisions shall apply: — 

If the question or matter to be decided is brought forward by one 
of the parties of the first part, the Umpire shall be a European. 
If on the contrary, the question or matter to be decided is brought 
forward by one of the parties of the second part, the Umpire shall be 
an American. 

20. With regard to Patents which the American Factories or the 
European Factories may possess in each others' territories, it is 
understood that unless compelled by agreement mth inventors to 
take legal proceedings with regard to alleged infringements, no 
legal proceedings are to be taken in respect of any alleged infringe- 
ment until an attempt has been made to settle the matter amicably. 
In order to bring about such amicable understanding the question 
is first to be ventilated by correspondence between the Chairmen, 
who shall have power to constitute themselves an arbitral tribunal, 
obtaining evidence from experts on both sides ; and should they hold 
that an infringement has been committed they shall fix the rate of 
royalty to be paid. Should they not agree, they shall call on par- 
ties to sign a deed of submission, authorising them to appoint an um- 
pire, whose award shall be final. 

Inasmuch as the parties have undertaken not to manufacture 
in each others' territories they are not to purchase any Patent for 
each others' territories, except after having given the party inter- 
ested in the manufacture in the country in question the right of 
pre-emption on the same terms as the Patent is offered to them. 

Transitory 

This Agreement is made subject to ratification by the 31st Au- 
gust, 1897. Mr. Eugene Du Pont, Mr. Bernard Peyton, Mr. Addi- 



International Agreements 183 

son Fay, and Mr. Hamilton Barksdale have undertaken to recom- 
mend and advocate such ratification by the American Factories, 
which is to be notified to Mr. E. Kraftmeier, of 55, Charing Cross, 
London, S. W. (Telegraphic Address — "Kraftmeier, London,") so 
as to be in his possession by the 31st August, 1897, and Mr. Thomas 
Reid, Mr. J. N. Heidemann, Mr. Max A. Philipp, and Mr. E. 
Kraftmeier will recommend and advocate such ratification by the 
European Factories, which is to be notified to Mr. Eugene Du Pont 
so as to be in his possession by the 31st August, 1897. 

Exhibit 4 

aluminum company of america ^ 
THE A. J. A. G. AGREEMENT OF SEPTEMBER 25, 1908 

About September 25, 1908, the defendant Aluminum Company 
of America, acting through the Northern Aluminum Company, of 
Canada, which is entirely owned and controlled by defendant, en- 
tered into an agreement with the so-called Swiss or Neuhausen 
Company, of Europe, which is the largest of the European com- 
panies engaged in the aluminum industry and designated in this 
agreement as "A. J. A. G.," parts thereof material to this action 
being as follows: 

2. The N. A. Co. agree not to knowingly sell aluminum, directly 
or indirectly, in the European market. 

The A. J. A. G. agree not to knowingly sell aluminum, directly 
or indirectly, in the American market (defined as North and South 
America, with the exception of the United States, but including 
West Indies, Hawaiian and Philippine Islands). 

4. The total deliveries to be made by the two companies shall be 
divided as follows: 

European market, 75% to A. J. A. G., 25% to N. A. Co. 
American market, 25% to A. J. A. G., 75% to N. A. Co. 
Common market, 50% to A. J. A. G., 50% to N. A. Co. 

The Government sales to Switzerland, Germany, and Austria- 
Hungary are understood to be reserved to the A. J. A. G. 

^ United States of America v. Aluminum Company of America. Petition in 
Equity, In the District Court of the United States for the Western District of 
Pennsylvania, pp. 15-16. 



1 84 Industrial Combinations and Trusts 

The Sales in the U. S. A. are understood to be reserved to the 
Aluminum Company of America. 

Accordingly the A. J. A. G. will not knowingly sell aluminum, 
directly or indirectly, to the U. S. A., and the N. A. Co. will not 
knowingly sell, directly or indirectly, to the Swiss, German, and 
Austria-Hungarian Governments. 

5. The N. A. Co. engages that the Aluminum Company of Amer- 
ica will respect the prohibitions hereby laid upon the N. A. Co. 

Said agreement became effective October i, 1908, and provided 
that it should "last until terminated by a six months' written no- 
tice," and petitioner avers that said agreement became effective 
and has been continuously since said date, and is now, in full force 
and effect, unless terminated by notice. 



CHAPTER IX 

POOLS AND ASSOCIATIONS 

NOTE 

^ As indicated in the note to Chapter I, the Pool has been one of 
the most persistent types of combination. In spite of its numerous 
disadvantages and alleged weaknesses, it has served as a means 
of combination in far more instances than has the Trust and in 
this respect may be regarded as a close competitor of that other 
device; the Holding Company. Pools may be organized for a wide 
variety of purposes; to divide territory, to raise prices, to pool 
profits, to restrict output, to divide output and others, or, a pool 
may embody several of these purposes in its programme. Though 
the general structure of such organizations is about the same the 
variations of type are great. For that reason there has been brought 
together a collection of pooling agreements which cover a wide 
field. They are fairly typical illustrations of this organization and 
are selected to give as comprehensive an idea of this form of combi- 
nation as possible. In the majority of cases the object of the pool is 
sufficiently stated in the terms of the agreements. — Ed. 

Exhibit i 
the steel rail pool ^ 

Memorandum of agreement, entered into August 2, 1887, hy and 
between the North Chicago Rolling Mill Cpmpany, the Cambria Iron 
Company, the Pennsylvania Steel Company, the Union Steel Company, 
the Lackawanna Iron and Coal Company, the Joliet Steel Company, 
the Western Steel Company, the Cleveland Rolling Mill Company, 
Carnegie Brothers df Co., Limited; Carnegie, Phipps b' Co., Limited; 
the Bethlehem Iron Company, the Scranton Steel Company, the Troy 
Steel df Iron Company, the Worcester Steel Works and the Spring- 
field Iron Company. 

1 Report of the Commissioner of Corporations on the Steel Industry. Part I, 
pp. 69-71, 

i8s 



1 86 Industrial Combinations and Trusts 

We, the before-named companies and corporations, manufac- 
turers of steel rails, hereby mutually agree one with the other, that 
we will restrict our sales and the product of steel rails of 50 pounds 
to the yard and upward, applying to orders taken by us and to be 
delivered by us or from our respective works during the year 1888, as 
hereinafter allotted and limited; and we respectively bind ourselves 
not to sell in excess of our current allotments, without first obtain- 
ing the consent of the Board of Control thereto — that is to say: 

It is agreed, there shall now be made an allotment of 800,000 tons 
of rails, which shall be divided and apportioned to and among the 
several parties hereto to be sold by them during the year 1888, upon 
the following basis of percentages, to wit; North Chicago Rolling 
Mill Company, i2-3/^ per cent; Pennsylvania Steel Company, 9-%o 
per cent; Bethlehem Iron Company 9 per cent; Carnegie Bros. & 
Co., Limited, and Carnegie, Phipps & Co., Limited (jointly), i3-%o 
per cent; Joliet Steel Company, 8 per cent; Lackawanna Iron and 
Coal Company, 8 per cent; Cambria Iron Company 8 per cent; 
Scranton Steel Company, 8 per cent; the Union Steel Company, 
8 per cent; Cleveland Rolling Mill Company, 4-%o per cent; Troy 
Steel & Iron Company, 4-%o per cent; Western Steel Company, 
4-%o per cent; Worcester Steel Works, i-^o per cent. 

And in addition to the said allotment of 800,000 tons of rails 
above allotted, an additional allotment of 250,000 tons is hereby 
made and allotted to the Board of Control, to be reallotted and 
reapportioned by it, as and to whom it may deem equitable, in the 
adjustment of any differences that may arise. It being also further 
agreed that all subsequent allotments of rails hereafter made, to be 
sold under this agreement during the year 1888, shall also be di- 
vided and apportioned to the several parties hereto in the same 
ratio of percentages as said apportionment of 800,000 tons is herein 
divided and apportioned. 

It is further agreed, that the Board of Control shall, from time to 
time, make such further allotments as shall be necessary to at all 
times keep the unsold allotments at least 200,000 tons in excess of the 
total current sales, as shown by the monthly reports of sales. This is 
to be in addition to the then unappropriated part of the 250,000 tons 
herein before alloted to the Board of Control to adjust differences. 

It is further agreed, on the first day of April, July and October, 
the Board of Control are authorized and directed to cancel such 
part of the unmade allotments of the respective parties hereto as 
they the said Board of Control shall determine such party unable 



Pools and Associations 187 

to make in due time, and all allotments so canceled the Board of 
Control shall have the right to reallot to any of the other parties 
hereto; it being understood that all such cancellations shall apply 
only to allotments standing to the credit of the respective parties 
hereto on the dates above named, but no reallotment as aforesaid 
shall be made by the Board of Control to any of the parties hereto 
for the purpose of enabling them, or any of them, to make and sell 
rails from foreign made blooms. 

It is further agreed, that all transfers of parts of allotments from 
one party to another shall be made by the Board of Control. 

It is further agreed, that there shall be a Board of Control, con- 
sisting of three members, namely Orrin W. Potter, Luther S. Bent 
and W. W. Thurston, who shall have power to employ a paid secre- 
tary and treasurer. 

It is further agreed, that the Board of Control, upon the written 
consent of 75 per cent of the percentages as hereinbefore named, 
shall increase the allotments for the year 1888, and such increase 
shall be allotted to the parties hereto as hereinbefore provided. 

It is further agreed, that each party whose name is hereunto 
annexed, shall and will make monthly returns to the Board of Con- 
trol of all contracts for delivery of rails of 50 pounds to the yard and 
upward during the year 1888, and also of all shipments of such rails 
made by them during said year; a copy of such return shall be fur- 
nished to each party hereto. 

It is further agreed, that all the parties hereto shall and will, 
on or before January 15, 1888, make a written return to the Board 
of Control of all the rails of 50 pounds to the yard and upward 
(designating the weight) which they respectively had on hand Jan- 
uary 1, 1888, stating whether the same are sold, and if sold, on what 
order they apply. 

It is further agreed, that the Board of Control shall have the 
right whenever they deem it expedient to convene a meeting of the 
parties hereto, and they shall give at least ten days' previous notice 
of all meetings, and any business transacted at such meetings, and 
receiving 75 per cent of the votes present thereat, either in person 
or by proxy, shall be binding on all the parties hereto, excepting as 
to a change in percentages as aforesaid: 

The Board of Control shall be required to call a meeting of the 
parties hereto when requested so to do in writing, signed by any 
three of the contracting parties, but such request and such notice 
shall state the object for which such meeting is called. 



1 88 Industrial Combinations and Trusts 

It shall be the duty of the Board of Control to have a proper rec- 
ord kept of all the returns made to it, with power from time to 
time to change the form of return as they may deem expedient. 

The Board of Control shall have authority to levy an assessment, 
pro rata to the allotted tonnage, to defray the actual expenses made 
necessary to carry out this agreement. 

It is further agreed, that we will, respectively, immediately make 
return to the Board of Control of all rails of 50 pounds to the yard 
and upward which we are now under contract to dehver during the 
year 1888, said return to state to whom such rails are sold and when 
they are to be delivered. 

(Signatures) 

Exhibit 2 
constitution and by-laws of the michigan retail lumber 



DEALERS ASSOCIATION 



The title of this association shall be the Michigan Retail Lumber 
Dealers' Association, and its object is hereby set forth in the fol- 
lowing declaration of principles. 

We seek to establish the equitable principle that the retailer 
shall not be subjected to competition with the parties from whom 
he buys; that a fair opportunity shall be offered the man who in- 
vests his time and money in the retail business, and assumes the 
risk which such business inevitably involves, to earn an adequate 
remuneration for his labor and the use of his capital. We seek also 
to promote that spirit of harmony in the trade which shall prompt 
every detail dealer to maintain friendly relations with his com- 
petitors at home and his brother retailers everywhere. 

Article I. — Membership. 

ELIGIBILITY. 

Section i. Any person, firm, or corporation within the terri- 
tory of this association who may be regularly engaged in the lumber 
trade, carrying at all times an assorted stock of lumber, or lumber, 
sash, doors, etc., commensurate with the demands of his com- 

^ United States of America v. Edward E. Hartwick, et aL, Original Petition, 
In the Circuit Court of the United States for the Eastern District of Michigan, 
Southern Division, Exhibit A, pp. 42-52. The Michigan Retail Lumber Dealers 
Association was first organized about 1888 or 1889. — Ed. 



Pools and Associations 189 

munity (the equivalent of 75,000 feet of lumber in small cities and 
country towns being generally considered a minimum stock for a 
retail lumberyard), and who is in the business for the purpose of 
selling lumber at retail, and who keeps an office open during regular 
business hours, with a competent person in charge to attend to 
the wants of customers at all times, shall be considered a legiti- 
mate lumber dealer and may be eligible to membership in the 
association. 

DOUBT AS to eligibility. 

Sec. 2. Any doubt or question arising as to who may be eligible 
to membership in this association shall be referred to the board of 
directors to determine, and their decision shall be final. 



termination. 

Sec. 3. Whenever any member shall cease to keep a regular 
assortment of lumber, as set forth in section i, he shall cease to 
be a member of this association. 



WITHDRAWAL, HOW MADE. 

Sec. 4. Any member whose duties ^ are paid in full may with- 
draw from membership by giving notice to the secretary in writing 
and surrendering his certificate of membership, but memberships 
are not transferable except by vote of the board of directors. 

PENALTY FOR NONPAYMENT OF ANNUAL DUES. 

Sec. 5. If any member shall neglect or refuse to pay the dues 
provided for in the rules of this association within 60 days after 
due notice by the secretary, the secretary may strike his name 
from the rolls; and no member shall be entitled to make complaints 
for shipments in his territory while in arrears for dues, nor until 
such arrears are paid in full. 

member's liability to suspension. 

Sec. 6. Any member of this association who shall habitually 
fail to meet his engagements with the wholesale members or shall 
so conduct himself as to bring reproach upon the association, and 
3hall be reported by any member to the secretary of this associa- 

1 Thus in the original. — Ed, 



I go INDUSTRLA.L COMBINATIONS AND TRUSTS 

tion, shall be cited to appear before the board of directors, and 
should he fail to satisfy the board of directors he shall no longer 
be considered a member of this association and a participant in its 
benefits. 



Article II. — Complaints. 

WHO SHALL MAKE. 

Section i. Any member of this association who considers that 
he has just cause for complaint against any wholesaler or manu- 
facturer or their agents, may file said complaint with the secretary, 
of this association. 

HOW MADE. 

Sec. 2. All complaints shall be made in writing, giving as full 
particulars as possible, including dates of shipment and arrival, 
car number and initials, original point of shipment, names of the 
consigner and consignee, the purpose for which material was used, 
and any other particulars which can be learned. 

TIME LIMIT. 

Sec. 3. All complaints to be handled by this association must 
be filed wdth the secretary within 30 days after receipt of ship- 
ment at point of destination. No complaint from any member 
will be considered when made on account of sales or shipments 
made within 15 days after the date of said member's certificate of 
membership. 

INDEPENDENT ACTION. 

Sec. 4. In case any member elects to take up his own complaint 
direct "^dth the shipper instead of filing the same with the secre- 
tary, as provided in foregoing sections he shall not thereafter be 
privileged to have said complaint taken up by association. 



SECRETARY S DUTY IN REFERENCE TO COMPLAINTS. 

Sec. 6. It shall be the duty of the secretary at once to notify 
the party or parties against whom complaint has been made, with- 



Pools and Associations 191 

out giving the name of the party making the complaint. If the 
transaction complained of was made by a commission merchant, 
agent, or broker, or other person, the principal for whom they 
act shall also be notified and shall be considered jointly Hable. 



PRIMARY RULING ON RETAIL DEALERS. 

Seg. 7. The primary decision as to who are and who are not 
regular retail lumber dealers, in the territory of this association, 
shall rest with the board of directors, but in the event of any dif- 
ference of opinion arising over the ruling of the board in such cases 
the same shall be submitted to arbitration, according to rules here- 
inafter provided for the adjustment of complaints, but no sale 
made to any individual or firm whose status may not have been 
finally determined shall be subject to any penalty if it shall appear 
that due diligence has been employed by the party making the sale 
to satisfy himself that the purchaser was entitled to recognition 
as a dealer. 

PLAN of arbitration. 

Sec. 8. In the event that any claim is made against a manu- 
facturer or wholesaler who may be a member of any regularly or- 
ganized association of manufacturers or wholesalers, it shall be the 
duty of the secretary to refer the matter to the secretary of such 
manufacturers' or wholesalers' organization and to request the 
immediate presentation of the case to the party complained of 
and the adjustment of said claim. 

If it be found impossible to adjust the claim through the efforts 
of the secretary of this association acting on behalf of the retailers, 
and the secretary of the manufacturers' or wholesalers' organiza- 
tion, acting on behalf of the manufacturers or wholesalers, then 
the matter shall be referred to a board of arbitration, consisting of 
one member of this association and one member of any organization 
of manufacturers or wholesalers with which the party complained 
of may be identified, and it shall be the duty of the president of 
this organization as often as, and when necessary, to appoint any 
member to act as arbitrator on behalf of this association and its 
members. The two persons so selected shall have power to select 
a third person to act with and constitute the board of arbitrators, 
which shall be authorized to fully adjust the claim, the decision oi 
such board of arbitrators to be final and binding on all parties. 



192 Industrial Combinations and Trusts 



Article III. — Territory, 

TERRITORY DESCRIBED. 

Section i. Members shall be entitled to the protection of this 
association only at such places where they operate yards as they 
shall desire to have placed on the membership lists and for which 
there shall pay annual dues for each place so protected. It shall 
be understood, however, that sidetracks or small towns where 
there are no regular retail lumber yards, and which may be, under 
a reasonable construction, considered within the territory of mem- 
bers, shall be included within such protection without extra charge. 

OTHER associations. 

Sec. 2. It shall be contrary to the spirit of this association for 
any of its members to make or cause to be made shipments into the 
legitimate territory of members of other associations of retail 
lumber dealers, and members who shall so offend shall be made 
subject to such discipline as may be provided in the rules of this 
association. 

poachers. 

Sec. 3. Any person or persons, whether carrying a stock of 
lumber or not, making a practice of quoting prices, selling or ship- 
ping (to other than regular dealers) lumber, sash, doors, etc., into 
territory under the protection of this association, where said per- 
son or persons have no yards, shall be designated "poachers." 
When said poachers are reported in the membership list and noti- 
fication sheet, they will be considered as consumers at points other 
than where they may own yards, and any wholesaler or manufac- 
turer, or their agents making sales or shipments to said parties 
in the territory of any member of this association, after being 
thus reported, will be considered as ha\'ing sold or shipped to a 
consumer. 

Article IV. — Standard of grades. 

In ail cases of dispute as to quality of lumber arising between 
a member of this association and a member of a wholesalers' or 
manufacturers' association, the established grading rules of the 
association to which the wholesaler or manufacturer belongs, shall 
be taken as a basis of grade on which settlement shall be made, 



Pools and Associations 193 

unless a special agreement in writing for a special grade shall have 
been made when lumber was purchased. 

Article V. — Reciprocity. 

Reciprocity is in direct line with the true principles of all retail 
lumbermen's associations, and this association does hereby pledge 
its members, as far as it is practical and possible, to buy only of 
firms whose names appear on our membership lists or those of 
kindred associations. 

Article VI. — Additional rules. 

The work of this association shall be further set forth in detail, 
as to management and guidance of its members, by the adoption 
of such other measures, to be known as rules or by-laws, as may in 
accordance with this constitution be established. 

Article VII. — Amendments. 

Amendments to this constitution may be made at any regular 
meeting, or special meeting called for that purpose, by a vote of 
at least two-thirds of the members present and voting. 

by-laws. 



Sec. 3. Whenever and as often as any wholesaler or manufac- 
turer, dealer, or his agent shall sell lumber, sash, doors, or blinds for 
building purposes to any person not a regular dealer, any member 
doing business at the nearest point to which shipment was made 
shall notify the secretary of this association, giving him the date 
of shipment as nearly as possible, value of same, etc., and the secre- 
tary shall at once make demand of the wholesale dealer or manu- 
facturer who made such shipment, notify him that his association 
has a claim not to exceed 10 per cent of the value of said sale at 
the point of shipment. If the secretary settles the claim, the 
money so collected shall be turned into the treasury and a draft 
made on the treasurer for the amount, said draft to be forwarded 
to the party making the claim. If the secretary does not succeed 
in making the settlement and same is contested, he shall refer the 
matter to the arbitration committee, whose duty it shall be to hear 



194 Industrial Combinations and Trusts 

both sides of the case, determine the claim, and report to the secre- 
tary. If the manufacturer or wholesale dealer refuses to abide 
by the decision of the arbitration committee, it shall be the duty 
of the secretary immediately to notify the members of the associa- 
tion of the name of such wholesale dealer or manufacturer. If 
any member continues to deal with such wholesale dealer or manu- 
facturer, he shall be expelled from this association: Provided, That 
nothing in this section be so construed as to entitle members to 
make complaint for any lumber sold to manufacturers as defined 
in section 5 of Article II of the constitution of this association. 

Sec. 4. In the event that any claim is made against a manu- 
facturer who may be a member of any regular organized associa- 
tion of manufacturers, it shall then be the duty of the secretary 
to refer the matter to the secretary of such manufacturers' organi- 
zation and request the immediate presentation of the case to the 
party complained of and the adjustment of the claim. If it is 
found impossible to adjust the claim through the secretary of this 
association, acting on behalf of the retailer, and the secretary of 
the manufacturers' organization, acting in behalf of the whole- 
saler or manufacturer, then the matter shall be referred to a board 
of arbitration, consisting of one member of this association and 
one member of any organization of manufacturers with which the 
party complained of may be identified (and it shall be the duty of 
the president of this association, as often as and whenever necessary, 
to appoint a person to act as arbitrator on behalf of this associa- 
tion and its members), and the two persons so chosen shall have 
power to select a third person to act with and complete the board 
of arbitrators, who shall be authorized fully to adjust the claim, 
their decision to be final and binding on all parties. 

Sec. 5. Whenever and as often as any "commission man'* 
shall sell lumber, sash, doors, or blinds to any person not regular 
dealers, as defined in section i of Article I of the constitution of 
this association, he shall be treated as a manufacturer or whole- 
saler, and shall be reported to the members of this association in 
the same manner as a wholesaler, as described in section 4 of these 
by-laws. 

Sec. 6. Any wholesale dealer or manufacturer selling to a "com- 
mission man" or shipping on his order to any person or persons 
not regular dealers shall be held liable, the same as if he had made 
the sale himself, and be subject to the penalty as described in sec- 
tion 4 of these by-la w^s. 



Pools and Associations 195 

Sec. 7. No complaint shall be entertained from a member against 
a wholesale dealer or manufacturer, in accordance with the provi- 
sions of section 3 of these by-laws, for a bill of lumber ordered from 
a wholesale dealer or manufacturer within 15 days from the date 
of his certificate of membership; and no complaint shall be enter- 
tained from any member who is three months in arrears for dues. 

Sec. 8. If any person or persons after having been reported to 
the members of this association in accordance with the provisions 
of section 3 of these by-laws, violating the rules of this association 
shall make such settlement as the board of directors shall require, 
the secretary shall immediately notify the members of such settle- 
ment. 

Sec. 9. No claim shall be made on wholesale dealers or manu- 
facturers for sales made to consumers or contractors within a dis- 
tance of 15 miles from the pubHc square of any wholesale market, 
provided said lumber is consumed within said distance; also pro- 
vided that said territory shall be so confined by this association 
or its board of directors. 

Exhibit 3 
"fundamental agreement" of the explosive trade ^ 

This Agreement, made this 19th, day of December, 1889, be- 
tween E. I. Du Pont de Nemours & Company, a co-partnership 
doing business near Wilmington, Delaware; The Hazard Powder 
Company, a corporation organized under the laws of the State of 
Connecticut; the Laflin & Rand Powder Company, a corporation 
organized under the laws of the State of New York; the three in- 
dividual concerns named in the foregoing being in some of the 
provisions hereof grouped as one collective party, and called the 
"Three Companies"; and the Oriental Powder Mills, a cor- 
poration organized under the laws of the State of Maine; The 
American Powder Mills, a corporation organized under the 
laws of the State of Massachusetts; the Austin Powder Company, 
the Miami Powder Company, The King Powder Company, 
The Ohio Powder Company, said last named four corporations 
being organized under the laws of the State of Ohio ; The Sycamore 
Powder Company, a corporation organized under the laws of the 
State of Tennessee; the Lake Superior Powder Company, a 

1 United States of America v. E. I. du Pont de Nemours and Company. 
Government JExhibit No. 6, Pet. Rec. Exhibits, vol. i, pp. 94 ff. 



196 Industrial Combinations and Trusts 

corporation organized under the laws of the State of Michigan; the 
Marcellus Powder Company, a corporation organized under 
the laws of the State of New York. 

Whereas, the parties hereto make and sell gunpowder for blast- 
ing or sporting purposes, or both; and 

Whereas, the said parties now enjoy trade of a certain amount 
in one or both of the said two kinds of powder; and 

Whereas, for the purposes of this agreement "Blasting" powder 
is defined to be, such powder as is made of either nitrate of potassa 
or nitrate of soda, mixed with charcoal and sulphur, and designed 
to be used for mining or blasting operations; and "Sporting" 
powder is defined to be such powder as is made of Nitrate of po- 
tassa, charcoal and sulphur, and designed for use in small arms, 
(rifles, or smooth bores), cannon, mortars and shells; or in the 
manufacture of fireworks, safety-fuse and squibs; being of varying 
qualities and strength and of many brands and trade names, all 
of which are distinctly different from those of blasting powder; and 

Whereas, in certain portions of the United States the cost of 
selling said powder is excessive; and 

Whereas, for this and other causes the carrying on of business 
has been unsatisfactory in the greater part of the United States 
to the above named parties; and 

Whereas, it is important that reasonable and uniform prices 
should be maintained, that customers and the public generally 
should be relieved from the inconveniences and uncertainties due 
to rapid and uncertain fluctuations, that unjust discrimination 
between persons and localities should be avoided, and that con- 
tractors and other consumers should be enabled to arrange with 
reasonable certainty such portions of their business as are dependent 
upon the acts of the parties hereto; and 

Whereas, it is therefore desired by all parties hereto to enter 
into the agreement hereinafter set forth. 

Now Therefore, in Consideration of the premises, and in 
consideration of the one dollar and other good and valuable con- 
siderations to each of the parties by each of the others paid, the 
receipt of which is hereby acknowledged; for the purpose of regulat- 
ing in a convenient and desirable manner the business of the parties 
hereto, in such of their sales of powder as are treated in this agree- 
ment; for the purpose of avoiding unnecessary loss in the sale and 
disposition of such powder by ill regulated or unauthorized com- 
petition and under-bidding by the agents of the parties hereto, 



Pools and Associations 197. 

and for the purpose of protecting consumers and the public from 
unjust fluctuations in prices and from unjust discriminations. 
It is Hereby Agreed by the Parties Hereto as Follows : — 
I: — That during the existence of this agreement the trade in 
gunpowder in and throughout all of the United States and its 
Territories, now or hereafter enjoyed by each and all of the parties 
hereto, shall be subject to the provisions of this agreement, with 
the following three exceptions, viz: — 

(i) Such trade as either of said concerns constituting the parties 
hereto may now or hereafter have in powder actually exported to 
foreign countries. 

(2) Such trade as either of said concerns constituting the par- 
ties hereto may now or hereafter have with the Government of the 
United States. 

(3) Such trade in Blasting powder as either of said concerns 
constituting the parties hereto have in the Anthracite Regions of 
the State of Pennsylvania. (This trade having been retained at 
extraordinary sacrifices by the manufactories located within said 
district, some of which are owned or controlled by certain of the 
parties to this agreement, is to belong to the parties who now enjoy 
it, and no part of the same is to be taken by or shared with either 
of the nine concerns last named in the first paragraph of this agree- 
ment). 

The said Anthracite Regions of Pennsylvania are understood and 
agreed to be bounded and described as follows: All of Northumber- 
land County; all of Montour County; all of Columbia County; 
all of Luzerne County; all of Lackawanna County; in Susquehanna 
County the following named townships, Clifford, Herrick and 
Ararat; all of Wayne County except the townships touching on the 
Delaware River; all of Carbon County; all of Schuylkill County; 
that portion of Lebanon County north of the "First Blue Moun- 
tain"; and that portion of Dauphin County, north of the Southern 
boundaries of the townships of Rush and Middle Paxton, — being 
practically that portion of Dauphin County north of the "First 
Blue Mountain." 

11. That that portion of the United States, within which the 
regulation of trade is contemplated by this agreement, shall for 
that purpose be divided into districts within each of which uniform 
prices shall generally prevail, and said "Districts" are defined as 
follows: 

First District: The territory as follows: The New England States 



198 Industrial Combinations and Trusts 

excepting the county of Rutland in the State of Vermont, which 
is included with the State of New York, in the Second District; and 
excepting that the price for Blasting powder, only, at Ports upon 
Long Island Sound, West from Westerly, R. I., included, shall be 
twenty-five cents per keg lower than the minimum price for the 
same in the First District, generally; provided however, that such 
lower price shall not be made less than the regular list price for 
New York City. 

Second District: The territory as follows: The States of New York 
(the County of Rutland, Vt., included therewith). New Jersey, 
Pennsylvania, Delaware, Maryland, West Virginia (excluding 
Bramwell as provided hereinafter), Ohio, Indiana, Illinois, and 
those portions of the States of Michigan and Wisconsin south of 
the 44th. parallel of latitude; and the towns on the banks of the 
Potomac, the Ohio, and the Mississippi Rivers, adjoining said 
territory. 

Third District: The territory as follows: The States of Minnesota, 
Iowa, Missouri, Kentucky, Tennessee, Virginia, (Bramwell, W. Va., 
to be included also in this District), North Carolina, and those 
portions of the States of South Carolina, Georgia, Alabama and 
Mississippi north of the 33rd. parallel of latitude, and also those 
portions of the States of Michigan and Wisconsin north of the 44th. 
parallel of latitude; and also all that part of the State of Kansas 
east of the 98th. meridian of longitude; and the towns in Arkansas 
on the bank of the Mississippi River. 

Fourth District: The Territory as follows: The State of Arkansas, 
excepting the towns on the bank of the Mississippi River, the 
States of Louisiana and Florida and those portions of the States 
of Mississippi, Alabama, Georgia and South Carolina, south of the 
33rd. parallel of latitude, and also those portions of Dakota and 
Nebraska east of the 103rd. meridian of longitude, excepting the 
towns therein which adjoin the eastern boundaries thereof; and also 
all the State of Kansas, west of the 98th. meridian of longitude. 

Fifth District: The territory as follows: The Indian Territory 
and the State of Texas. 

Sixth District: The "Neutral Belt," which consists of the States 
of Colorado and Montana and the Territories of Wyoming, Utah 
and New Mexico, all of the same; and also those portions of Dakota 
and Nebraska, west of the 103rd. meridian of longitude. 

Seventh District: All of the States and Territories of the United 
States west of the western boundaries of the said "Neutral Belt", 



Pools and Associations 199 

which are named as follows: Oregon, Washington, Idaho, Cali- 
fornia, Nevada and Arizona. 

III. That of the whole aggregate trade of all the concerns com- 
prising the parties hereto, which is made subject to this Agree- 
ment, division shall be made among said parties in the manner 
hereinbelow provided: 

The yearly allotments of trade to the ^' Three Companies" shall 
be to them as one collective party, and shall be in such quantities 
of Sporting and Blasting powder as shall be equal to the average 
sales made by them of said kinds, respectively, for the years 1882, 
1883 and 1884. [Sptg. 209, 738, Blstg. 662, 420.] 

The yearly allotments of trade to the other concerns, parties to 
this Agreement, shall be as follows: 

Oriental Powder Mills, 

Sporting powder. Twenty-four thousand two hundred and 
twenty-three (24,223) kegs. 

Blasting powder. Sixty-five thousand one hundred and fourteen 
(65,114) kegs. 

American Powder Mills, 

Sporting powder, Thirty-one thousand seven hundred and fifty 
(31.750) kegs. 

Blasting powder. Fifty-seven thousand three hundred and sixty- 
six (57,366) kegs. 

Austin Powder Company, 

Sporting powder. Fifteen thousand five hundred and seventy- 
five (15,575) kegs. 

Blasting powder. Sixty-five thousand (65,000) kegs. 

Miami Powder Company. 

Sporting powder. Eleven thousand four hundred and fifty-two 
(11,452) kegs. 

Blasting powder. Sixty-six thousand five hundred and twenty 
(66,520) kegs. 

The King Powder Company, 

Sporting powder. Twenty-five thousand (25,000) kegs; and be- 
sides these there shall be a Special Allotment to said Company of 
Five Thousand (5,000) kegs of Sporting powder. 



200 Industrial Combinations and Trusts 

Blasting powder to the same Company, One hundred thousand 
(100,000) kegs. 

The Ohio Powder Company, 

Blasting powder. Sixty thousand (60,000) kegs. 

The Sycamore Powder Company, 

Sporting powder. Eight thousand (8,000) kegs. 
Blasting powder. Thirty thousand (30,000) kegs. 

The Lake Superior Powder Company, 
Blasting powder. Twenty thousand (20,000) kegs. 

The Marcellus Powder Company, 

Blasting powder, Twenty thousand (20,000) kegs. 

Making the total of the sums which are thus allotted and taken 
as the bases for the division of said trade to be: 

Of Sporting powder, 

Of Blasting powder, 

(Excluding the said Special Allotment of 5,000 kegs of Sporting 
powder to The King Powder Company.) 

It is Also Understood and Agreed That the sales out of the 
above allotments of all of the parties hereto in the following States 
and Territories, viz: California, Nevada, Oregon, Colorado, Wash- 
ington, Idaho, Arizona, Montana, Utah and New Mexico, are to 
be regulated by a certain supplementary agreement to be entered 
into between all of the concerns composing the parties hereto with 
the California Powder Works. 

IV. That the aggregate sales made by all the parties hereto in 
any one year of Sporting and of Blasting pow^der shall, for each 
kind separately, be considered as a volume of trade of certain value 
to be divided among all of said parties in direct proportion to the 
yearly allotments to each and by the method hereinbelow set forth: 

The value of said volume of trade shall be reckoned at the rate 
of thirty-five (35) per cent of the hst price per keg for Sporting 
powder, and twenty-five (25) per cent of the Hst price for Blasting 
powder, in the "Second District"; subject to change as said list 
prices may be changed; said values so reckoned being now for Sport- 
ing powder $1.75 per keg and for Blasting powder 50 cents per keg. 

The method for determining the "list price" last mentioned, to 



Pools and Associations 201 

used ^ as the basis for said adjustment of sales of either of said 
kinds of powder, shall be by taking the average of the prices for 
the months of the period under treatment, (considering as a whole 
month a fraction greater than one half) as said prices shall have 
been fixed in accordance with the provisions of this agreement. 

V. That the periods for settlement in division of trade shall be 
as follows: 

The first period shall be, and shall comprise the sales of, the 
six months ending June 30th, 1890, made by all the parties hereto, 
and subsequently the periods shall be each comprising their sales 
for twelve months and ending June 30th. of each year. And ad- 
justment of differences in sales for said first period shall be upon 
the basis of one half of said allotments. 

VI. That at the end of each of said periods, and within sixty 
days thereafter, each of the parties hereto (the "Three Companies" 
for this purpose being considered as one party) shall make up 
separate svv^orn statements showing their sales of Sporting and 
Blasting powder, respectively, made within said periods, and 
forward the same to the Board of Trade, hereinafter provided to be 
established. 

The Board of Trade shall consider separately the sales of Sport- 
ing and Blasting powder as the same shall appear in said sworn 
statements, and shall make computation of the differences therein 
exhibited; (By said differences meaning the sales in excess or in de- 
ficiency of the proportions to which each party should be entitled 
in the division of trade as provided by Section IV. hereof) and, 
considering and valuing said differences, at said rates per keg, for 
the respective kinds of powder, shall make adjustment or clearance 
of such differences, in money values, and shall furnish each party 
a written accounting in full detail, of such clearing process: and the 
same proving to be a correct computation, the liabilities of the 
parties shall be as thus determined and stated; and within thirty 
days from that time each party so made Hable shall pay into the 
Treasury such sum of money as shall have thus been adjudged to 
be due from it. And all of said money thus paid into the Treasury 
shall be distributed among the parties hereto, entitled to the same, 
in sums to each of them as the same shall have been" determined by 
said accounting of the Board of Trade. 

VII. That in addition to the sworn statements to be made at the 
end of each of said periods as hereinbefore provided for, each of 

1 Thus in original. — Ed. 



202 Industrial Combinations and Trusts 

the parties hereto (the "Three Companies" for this purpose being 
considered as one party) shall at the end of each quarter of each 
calendar year, and within thirty days thereafter, make up state- 
ments which shall be estimates, as nearly correct as practicable, of 
their sales of each of said kinds of powder during said quarter and 
shall immediately forward the same to the said Board of Trade 
which shall immediately furnish each of the parties hereto with a 
combined statement of all of said sales during said quarter, show- 
ing the sales of each of said parties, of each of said kinds; which 
said combined statement is to be for the guidance of each of the 
parties; to the end that their sales may not, for the whole of the 
then current period, be in excess of their allotments. 

VIII. That in all statements of sales provided by this agreement 
to be made and in all adjustments thereunder. Sporting powder, 
whether sold in packages of twenty-five pounds each or in pack- 
ages of other sizes, and whether of one quahty or another, shall be 
considered and taken as if the same were all of one quality, to wit: 
*' Rifle" (now so called in the trade) powder; and shall be stated 
in units of twenty-five pounds each and fractions thereof, if any, 
in decimals, and Blasting powder whether made of nitrate of potassa 
or nitrate of soda, shall be considered and taken as if made of last 
named material. 

IX. That in none of the statements hereinbefore provided to be 
made by the parties hereto concerning their sales and for the pur- 
pose of dividing the whole of their trade which is subject to the 
provisions of this agreement shall there be counted or included any 
sales of powder made by any one of them to any other of them. It 
being intended that if one party shall sell powder to another such 
powder shall be counted only in the sales of the party who shall mar- 
ket the same. 

X. That the statements of sales made by each of the parties hereto 
for the purpose of dividing the trade of the first period (January 
I St., -June 30th., 1890) shall include all the powder delivered in said 
period though the same may have been sold previously. 

XI. That immediately after the adoption of this Agreement, 
there shall be elected a Board of Trade, so to be called, consisting of 
five members, and a Secretary and Treasurer of the same. 

XII. That at all elections of the memebers ^ of the Board of Trade 
and of a Secretary and Treasurer of the same, voting shall be by 
ballot and each of the parties to this Agreement shall have one vote 

1 Thus in the original. — Ed. 



Pools and Associations 



203 



(thus providing for one vote by each of the ''Three Companies") 
and a majority of the votes so cast shall elect: parties hereto not 
present at a meeting may be represented by personal proxy. 



XVII. That the Board of Trade shall have power to fix prices 
and to vary or change the same at any time and for any place, to 
meet contingencies and for protection of the common interests. It 
shall have power to enforce any rules and regulations which may be 
adopted by the parties to this agreement and to take any measures 
for that purpose which may in its judgment be necessary. It shall 
hear and adjudge in all cases of grievances, when the parties in- 
volved shall not be able to agree among themselves. 

The members of the Board shall be re-imbursed for all expenses 
incurred by them in performance of their duties. 

XVIIL That any action taken at a General Meeting affecting 
the rights of any individual concern, shall have the unanimous con- 
sent of all the parties hereto to be valid and of authority; excepting 
only in balloting for members of the Board of Trade and for the 
Secretary and Treasurer as hereinbefore, in Section XII, provided. 

XIX. That any General Meeting duly authorized may review or 
reverse the acts of the Board of Trade and instruct it upon any 
matter. And at any General Meeting when a question shall be of 
approval or reversal of any previous acts or decisions, parties hereto 
not then present may have a vote upon such question by personal 
proxy giving power thereunto. 

XX. That the duties of the Secretary and Treasurer shall be as 
follows: he shall issue notices for and shall attend all Meetings of 
the Board of Trade and all General Meetings of the parties hereto 
and shall keep a faithful record of the proceedings at all such Meet- 
ings and shall send a copy of the same to each of the parties hereto. 
And he shall be the medium of the communication between the 
members of the Board of Trade as well as between all the parties 
to this agreement upon matters of general concern. 

He shall receive and disburse all moneys for expenditures in the 
common interest in accordance with the methods prescribed there- 
for and shall make semi-annual reports to all the parties, of such ex- 
penditures and of the disposition of all moneys coming to his hands. 

He shall receive a salary of $2500 per annum for his services. 

XXI. That all assessments of money for expenditures made or 
to be made for the common interest shall be upon each party in 



204 Industrial Combinations and Trusts 

direct proportion as its allotment in number of kegs of both kinds 
of powder is to the total of the allotments to all the parties in num- 
ber of kegs of both kinds, (excluding said Special Allotment of 
Sporting powder to The King Powder Co.) with exception only as 
provided in Section XXII. hereof. And no obligation for the pay- 
ment of money shall be incurred, other than for such expenditures 
as are provided for in this agreement, except the same shall be done 
at a General Meeting held as hereinbefore pro\dded. 

XXII. That any party hereto who shall suffer excessive loss by an 
overt act of the Board of Trade, — as for instance the reduction of a price 
at a place, in treatment of a local disturbance of trade, — shall receive 
compensation for the damage it shall sustain by payment of money 
as may be agreed upon at a General Meeting, on the recommendation 
of the Board of Trade. ^ And requisitions for money to pay such 
damages shall be made by the Board upon those of the parties 
who make and sell that specific kind of powder regarding which 
such award for damages shall have been settled; and contributions 
shall be required of them in direct proportion to their allotments 
for that specific kind of powder. 

XXIII. That all the concerns constituting the parties hereto 
shall be and are severally bound to each other for the fulfillmxcnt 
of all the obligations of tliis agreement, but no concern shall be 
responsible for any default of any other concern. 

XXIV. That an Agreement or Agreements, supplementary and 
auxihary to this, shall be executed by all the parties hereto relating 
to the prices to be maintained for sales of powder, and the general 
harmonious arrangement of the powder trade. 

XXV. That the existing agreements between the twelve con- 
cerns, parties hereto, and the California Powder Works, and 
between the "Three Companies" and the other nine concerns, 
parties hereto, relating to the trade of the "Pacific Coast District" 
and the "Neutral Belt", shall continue wdth the consent of all the 
parties hereto, now expressed; and the consent thereto of the Cali- 
fornia Powder Works shall be obtained if practicable. New written 
Agreements to be the same in effect as those now existing shall be 
made and executed, if possible, at an early date; the same to be co- 
terminous mth this Agreement. 

XXVI. That the benefits and liabihties arising from this Agree- 
ment shall extend to the successors and assigns of each of the 
concerns comprising the parties hereto and to the executors and 

1 Italics are the editor's. 



Pools and Associations 205 

administrators of the members of the firm of E. I. Du Pont, de 
Nemours & Company, but no concern shall be liable for any de- 
fault not committed by itself except as herein expressly specified. 

XXVII. That this Agreement shall begin to be in effect on the ist. 
day of January, 1890, and shall remain in force until the 30th. day of 
June, 1895, and shall continue in force thereafter from year to year, 
indefinitely, so long as none of the concerns shall give written notice 
to all the others, through the Secretary of the Board of Trade, of its 
intention to withdraw at least three months previous to June 30th., 
1895 ; but such notice having been given, in any year succeeding the 
year 1894, this Agreement shall terminate June 30th. of said year. 

XXVIII. That the Schaghticoke Powder Company, a corpora- 
tion organized under the laws of the State of New York, being 
owned as to a majority of its stock, and controlled by the Lafiin 
& Rand Powder Company, it is understood and agreed that all 
of its sales shall be considered as sales of the Lafhn & Rand Powder 
Co., and said Lafiin & Rand Powder Co. hereby guarantees that 
said Schaghticoke Powder Co. will respect and faithfully comply 
with all the provisions of this Agreement with the same effect as 
if it had signed this Agreement as a party hereto included under 
the name of the Lafiin & Rand Powder Company. 

XXIX. This shall be called the ''Fundamental Agreement." 
In Witness Whereof, the concerns forming the parties hereto, 

have hereunto set their hands and affixed their corporate seals the 
day and year first above written. 

(Signatures) 

Exhibit 4 
addyston pipe pools ^ 

From the minutes of the association, a copy of which was put 
in evidence by the petitioner, it appeared that prior to December 
28, 1894, the Anniston Company, the Howard-Harrison Company, 
the Chattanooga Company, and the South Pittsburg Company 
had been associated as the Southern Associated Pipe Works. Upon 
that date the Addyston Company and Dennis Long & Co. were 
admitted to membership, and the following plan was then adopted: 

^ United States v. Addyston Pipe &" Steel Company. 85 Fed. 271. Cf. pp. 
273 ff. The first of these pools was to divide territory, the second was an ex- 
ample of the so called auction pool. The case was carried to the Supreme Court 
of the United States and a decree entered in favor of the Government. — Ed. 



2o6 Industrial Combinations and Trusts 

"First. The bonuses on the first 90,000 tons of pipe secured 
in any territory, 16'' and smaller, shall be divided equally among 
six shops. Second. The bonuses on the next 75,000 tons, 30'' 
and smaller sizes, to be divided among five shops, South Pittsburg 
not participating. Third. The bonuses on the next 40,000 tons, 36'' 
and smaller sizes, to be divided among four shops, Anniston and 
South Pittsburg not participating. Fourth. The bonuses on the 
next 15,000 tons, consisting of all sizes of pipe, shall be divided 
among three shops, Chattanooga, South Pittsburg, and Anniston 
not participating. The above division is based on the following 
tonnage of capacity: South Pittsburg, 15,000 tons; Anniston 30,000 
tons; Chattanooga, 40,000 tons; Bessemer, 45,000 tons; Louisville, 
45,000 tons; Cincinnati, 45,000 tons. When the 220,000 tons have 
been made and shipped, and the bonuses divided as hereinafter 
provided, the auditor shall set aside into a reserve fund all bonuses 
arising from the excess of shipments over 220,000 tons, and shall 
divide the same at the end of the year among the respective com- 
panies according to the percentage of the excess of tonnage they 
may have shipped (of the sizes made by them) either in pay or 
free territory. It is also the intention of this proposition that the 
bonuses on all pipe larger than 36 inches in diameter shall be divided 
equally between the Addyston Pipe & Steel Company, Dennis 
Long & Co., and the Howard-Harrison Company." 

"It was thereupon resolved: First. That this agreement shall 
last for two years from the date of the signing of same, until De- 
cember 31, 1896. Second. On any question coming before the 
association requiring a vote, it shall take five affirmative votes 
thereon to carry said question, each member of this association 
being entitled to but one vote. Third. The Addyston Pipe & Steel 
Company shall handle the business of the gas and water companies 
of Cincinnati, Ohio, Covington, and Newport, Ky., and pay the 
bonus hereafter mentioned, and the balance of the parties to this 
agreement shall bid on such work such reasonable prices as they 
shall dictate. Fourth. Dennis Long & Company, of Louisville, 
Ky., shall handle Louis\dlle, Ky., Jefferson ville, Ind., and New 
Albany, Ind., furnishing all the pipe for gas and water works in 
above-named cities. Fifth. The Anniston Pipe & Foundry Com- 
pany shall handle Anniston, Ala., and Atlanta, Ga., furnishing 
all pipe for gas and water companies in above-named cities. Sixth. 
The Chattanooga Foundry & Pipe Works shall handle Chattanooga, 
Tenn., and New Orleans, La., furnishing all gas and water pipe 



Pools and Associations 



;2o7 



in the above-named cities. Seventh. The Howard-Harrison Iron 
Company shall handle Bessemer and Birmingham, Ala., and St. 
Louis, Mo., furnishing all pipe for gas and water companies in the 
above-named cities; extra bonus to be put on East St. Louis, and 
Madison, 111., so as to protect the prices named for St. Louis, Mo. 
Eighth. South Pittsburg Pipe Works shall handle Omaha, Neb., 
on all sizes required by that city during the year of 1895, conferring 
with the other companies and co-operating with them. There- 
after they shall handle the gas and water companies of Omaha, 
Neb., on such sizes as they make. 

"Note: It is understood that all the shops who are members of 
this association shall handle the business of the gas and water 
companies of the cities set apart for them including all sizes of pipe 
made by them. 

''The following bonuses were adopted for the different states 
as named below: All railroad or culvert pipe or pipe for any drain- 
age or sewerage purposes on 12'' and larger sizes shipped into bonus 
territory shall pay a bonus of $1.00 per ton. On all sizes below 1.2" 
and shipped into 'bonus territory' for the purposes above named, 
there shall be a bonus of $2.00 per ton. 



Alabama $3 00 

B'gham, Ala. ... 2 00 

Anniston, Ala. . . 2 00 

Mobile, Ala i 00 

Arizona Ter. ... 3 00 

California i 00 

Colorado 2 00 

Ind. Ter 3 00 

North C I 00 

Tenn., East of 

C'land 2 00 

Tenn., Middle and 

West 3 00 

Ilhnois, except 

Madison and 

East St. Louis, 

as previously 

provided 2 00 



List of Bonuses 

Wyoming .... $4 00 

Oregon i 00 

Ohio I 50 

N. D 2 00 

S. D 2 00 

Florida i 00 

Georgia 2 00 

Atlanta, Ga. . . 2 00 
Ga. Coasts Pts i 00 

Idaho 2 00 

Nev 3 00 

Oklahoma .... 3 00 

Wis 2 00 

Texas, Interior 3 00 
Texas Coast . . i 00 
Wash'ton Ter. i 00 
Michigan .... i 50 
West Va I 00 



Kansas ... .$2 00 

Ky 2 GO 

La 3 00 

Miss 4 GO 

Mo 2 GG 

Montana ... 3 gg 

Nebraska . . 3 gg 

N. Mex. ... 3 GG 

S. C I GG 

Minn 2 gg 

Utah 4 GG 

Indiana .... 2 gg 

Iowa 2 GG 



2o8 IxDusTRL\L Co:mbinations and Trusts 

"All other territory free. 

"On motion of Mr. Llewellyn, the bonuses on all city work as 
specially reserved shall be S2.00 per ton." 

The states, for sales in which, bonuses had to be paid into the 
association were called "pay" territcr)^, as distinguished from 
"free" territory', in which defendants were at liberty to make sales 
without restriction and without pacing any bonus. The by-laws 
pro\-ided for an auditor of the association, whose duty it was to 
keep account of the business done by each shop both in pay and free 
territory. On the ist and i6th of each month, he was required to 
send to each shop "a statement of all shipments reported in the 
pre\dou3 half month, Vvdth a balance sheet showing the total amount 
of the premiums on shipments, the diAision of the same, and debit, 
credit, balance of each company." The system of bonuses, as a 
means of restricting competition and maintaining prices, was not 
successful. A change was therefore made by which prices were to 
be fixed for each contract by the association, and, except in reserved 
cities, the bidder was determined by competitive bidding of the 
members, the one agreeing to give the highest bonus for di\dsion 
among the others getting the contract. The plan was embodied 
in a resolution passed May 27, 1895, in the words foUo^dng: 
"WTiereas, the system now in operation in this association of hav- 
ing a fixed bonus on the several states has not, in its operation, re- 
sulted in the advancement in the prices of pipe, as was anticipated, 
except in reserved cities, and some further action is imperatively 
necessary in order to accompHsh the ends for which this association 
was formed: Therefore, be it resolved, that from and after the 
first day of June, that all competition on the pipe lettings shall 
take place among the various pipe shops prior to the said letting. 
To accomphsh tliis purpose it is proposed that the six competitive 
shops have a representative board located at some central city, 
to whom all inquiries for pipe shall be referred, and said board 
shall fix the price at which said pipe shall be sold, and bids taken 
from the respective shops for the pri^dlege of handling the order, 
and the party securing the order shaU have the protection of all 
the other shops." In pursuance of the new plan, it was further 
agreed "that all parties to this association, ha^-ing quotations 
out, shall notify their customers that the same ^dll be withdrawn 
by June i, 1895, if not pre\'iously accepted, and upon all business 
accepted on and after June ist bonuses shall be fixed by the com- 
mittee." At the meeting of December 19, 1S95, it was moved and 



Pools and Associations 209 

carried that, upon all inquiries for prices from ''reserved cities" 
for pipe required during the year of 1896, prices and bonuses should 
be fixed at a regular or called meeting of the principals. At the 
meeting of December 20, 1895, the plan for division of bonuses 
originally adopted was modified by making the basis the total 
amounts shipped into ''pay" territory rather than the totals 
shipped into "pay" and "free" territory. 

Exhibit 5 
extracts from the constitution and by-laws of the coal 

dealers' ASSOCIATION OF CALIFORNIA ^ 

"Article i. Title and Object, (a) The title of this organization 
shall be the 'Coal Dealers' Association of Cahfornia/ with prin- 
cipal place of business in San Francisco, (b) It shall have for its 
object the furnishing of information to its members as to sales of 
coal made by wholesale dealers to the retail dealers, and by retail 
dealers to consumers, and also the names of any dealers who have 
been guilty of violating any of the rates or rules made from time to 
time by this organization, and the furnishing of as complete a list 
as possible of delinquent consumers, and such other matters as 
may be decided upon. 

"Art. 2. What Constitutes a Dealer, (a) Any person who en- 
gages in the sale of coal as regular business, buying to sell again, 
who shall own and operate a yard, keeping an ofiice, and displaying 
a sign, shall be regarded as a retail dealer, (b) All miners and 
shippers shall be eligible to membership in this association, pro- 
vided such miner and shipper shall not make a practice of selling 
coal, at retail, at less price than the retail dealers." 

"Art. 4. Fees — Dues — Assessments, (a) The admittance fee for 
membership shall be two hundred (200) dollars, and must invari- 
ably accompany the application, (b) The amount of dues shall 
be fifty cents per month, payable quarterly in advance, and to date 
from the first day of the month following the month in which the 
member was admitted, (c) Assessments may be levied by a two- 
thirds vote of the members present at a regular meeting, but only 

^ United States v. Coal Dealers^ Association of California. 85 Fed. 252. 
Cf. pp. 254 ff. This combination was organized September nth, 1896, by the 
retail coal dealers of San Francisco. Another agreement was entered into be- 
tween this Association and Wholesale dealers of the same City. A temporary 
injunction against this combination was granted by the court. — Ed. 



210 Industrial Combinations and Trusts 

in such cases when the interests of the association as a business 
society require it. (d) No assessment shall be levied unless it is 
expressed in the notice of meeting that ' a resolution to levy an 
assessment will be introduced.'" 

"Art. 6. Failure to Pay Dues, Assessments, or Fines — Charges — 
Right of Appeal, (a) If any member shall neglect or refuse to 
pay the monthly dues and assessments as provided in the consti- 
tution and the by-laws of this association within three days after 
the same have become due, he or they shall no longer be considered 
members of this association, or participant in its benefits, and 
shall surrender certificate of membership; but a written or printed 
notice must be sent, at the expiration of said time, to all those 
members who are delinquent, and may be reinstated within ten 
days thereafter by paying in full all dues." 

BY-LAWS 



" Sec. 4. Standing Committees, (a) A grievance committee con- 
sisting of three persons shall be appointed by the president, from 
the board of directors, on the first Monday of every month, to 
serve without compensation until the first Monday of the follow- 
ing month, or until their successors are appointed. They shall 
assemble whenever requested to do so by the secretary, and re- 
ceive and investigate all charges of violation of card rules or rates 
preferred against any coal dealer or agent in the city and county 
of San Francisco, and report their findings to the secretary. They 
shall have the power to fix the time limit for the payment of any 
fines imposed by them " 

''Sec. 9. Advertising, Circulars, etc. (a) Dealers in advertising 
coal are not permitted to state prices without adding the names 
of coal to be had for the prices named; both names and prices to 
correspond exactly with those on rate card, (b) Any circulars, 
posters, dodgers, cards, or signs confhcting with the card rates or 
rules displayed, found on the streets or circulated in any manner 
whatsoever, shall subject the dealer or agent, who caused their 
distribution, to the penalties, as are provided in section 13 of these 
by-laws for selling coal in violation of card rates or rules. 

"Sec. II. New Yards. Any member opening a new yard or 
yards after June 14th, 1895, in addition to the one that secured his 



Pools and Associations 211 

admission in the association, shall be liable for an additional two 
hundred (200) dollars admittance fee and monthly dues for each 
yard so opened, in order for such yard or yards to participate in 
the benefits of the association. 

^'Sec. 12. Standard Rules and Weights, (a) No dealer shall 
give more or less than 100 pounds to i sack; 500 pounds to 5 sacks, 
or }/i ton (short); 1,000 pounds to 10 sacks, or J^ ton (short); 
2,000 pounds to 20 sacks, or i ton (short); 2,240 pounds to i ton 
(long), (b) All long tons must be delivered in bulk. Names of 
coal must appear on bill exactly as they read on rate card. A load 
of coal delivered in bulk shall be per ton of 2,240 pounds. If 
handled after arrival at customer's place, an additional charge of 
fifty cents per ton must be made. A ton of coal delivered in twenty 
sacks, and put in bin, shall be 2,000 pounds. No premiums or 
presents are permitted to be offered as inducements for purchasers 
to buy coal, (c) Dealers shall be permitted to sell and deliver fifty 
pounds of coal at one half card rates for one hundred pounds, but 
in no case shall they be allowed to sell coal in quantities ranging 
between fifty pounds and one hundred pounds. 

"Sec. 13. Violations — Penalties, (a) If a dealer or agent, mem- 
ber or non-member, be found guilty of selling coal in violation of 
the card rates or rules, he shall be subject to a fine of not less 
than ten (10) dollars nor more than one hundred (100) dollars for 
the first offense, not less than twenty-five (25) dollars nor more 
than two hundred (200) dollars for the second offense; if a member 
of the association, be suspended and compelled to pay retail prices 
for third offense until restored to membership in good standing 
by the board of directors. . . . 

Exhibit 6 
structural steel association of the united states ^ 

This agreement, made and entered into this ist day of January, 
1897, by and between the Passaic Rolling Mill Co., Pottsville Iron 
& Steel Co., A. & P. Roberts Co., Cambria Iron Co., Phoenix Iron 
Co., New Jersey Steel & Iron Co., Universal Construction Co., the 
Carnegie Steel Co. (Ltd.), Cleveland Rolhng Mill Co., Jones & 
Laughlin Steel Co. (Ltd.), 

^ United, States of America v. United States Steel Corporation. Petition, In 
the Circuit Court of the United States for the District of New Jersey, Exhibit B, 
pp. 76-82. 



212 Industrial Combinations and Trusts 

Witnesseth that the above said parties have mutually agreed to 
and with each other to form an association to be known as the 
Structural Steel Association of the United States. 

First. Each of the above parties named, being manufacturers and 
sellers of steel I beams and channels of sizes not less than 3 inches in 
depth, shall, by reason of such manufacture and sale, be entitled to 
membership in this association, and each of the parties hereto shall 
be entitled to such portion of all sales by parties hereto of I beams 
and channels of sizes not less than 3 inches in depth (except I beams 
and channels for use in car construction and deck or bulb beams) 
as is allotted to it under the following table: 

Per cent. 

The Carnegie Steel Co. (Ltd.) 49 | 

Jones & Laughlin (Ltd.) 12 | 

A. & P. Roberts Co 11 4 

Passaic Rolling Mill Co 6 

Phoenix Iron Co .- 5 

Cambria Iron Co 5 

Universal Construction Co 4 f 

Pottsville Iron & Steel Co 3 

Cleveland Rolling Mill Co 3 



100 



It being understood that members of this association having 
bridge works wherein beams and channels, as covered by this agree- 
ment, are consumed shall report to this association all shipments to 
such departments and pay the agreed pool tax as hereinafter pro- 
vided on shipments so made (except such as are used in the con- 
struction of buildings for their own respective works which tonnage 
shall be reported and credit given therefor). 

Second. The officers of this association shall be as follows: A 
president, a treasurer, a commissioner and an executive committee, 
consisting of three members (the president being a member of the 
executive committee, ex ofi&cio). 

Third. Each member of this association (the New Jersey Steel 
& Iron Co. excepted), shall, on or before the loth day of February, 
1897, and on and before the loth day of each and every month 
thereafter, during the terms of this agreement, or any extension 
thereof, render to the commissioner of this association, a statement, 
which statement shall be sworn to or affirmed to by one of the prin- 



Pools and Associations 213 

cipal executive officers of the member so making the report, or in 
case the member so making the report is a copartnership, then, in 
that case, the report shall be sworn to or affirmed to by one of the 
firm holding membership in this association which oath or affirma- 
tion shall be to the effect that the report so made, is a true and 
correct report of all the material described in the first clause of this 
agreement which was shipped by the member making the report 
during the month for which the report is made; the form of the re- 
port and oath or affirmation as to its correctness, shall be furnished 
by the commissioner. And upon the commissioner's receiving from 
the respective members their reports, as aforesaid, he, the commis- 
sioner, shall render to each member monthly, as soon as possible 
after the receipt of all the statements of all the members, copies of 
statements last rendered by each member, and shall forthwith 
''state an account," charging each member, who has shipped during 
the month more than its or their percentage of the total amount 
shipped by all the members of the association, the sum of five-tenths 
cents per pound on each and every pound of such excess and credit- 
ing each member who has not shipped its or their percentage of the 
total amount shipped by all the members of the association with 
the sum of five-tenths cents per pound on each and every pound 
which it or they fail to ship during the month for which the reports 
are made, as aforesaid, and as a basis of calculation in making such 
"statement of account," the commissioner shall use the table of 
percentages as set forth in the first clause of this agreement. 

And upon the statement of such account by the commissioner, he 
shall immediately mail a copy thereof to each member of this 
association and within five days after the receipt of any account by 
the member of this association, which account shall show that the 
member receiving the same is indebted to the association, the mem- 
ber so receiving its or their account showing its or their indebted- 
ness, shall forward to the treasurer a check or sight draft drawn to 
the order of T. Mellon & Sons, in payment of such indebtedness, 
which check or sight draft the treasurer shall deposit in the said 
T. Mellon & Sons' bank to the credit of this association, and im- 
mediately upon the treasurer receiving from the members all their 
respective remittances, in payment of their indebtedness to the 
association, for any month, he, the treasurer, shall notify the re- 
spective members whom the aforesaid ''account stated" shall show 
to be creditors of the association for any month, to drav/ on him 
(the treasurer) for the amount due to them as shown by said "ac- 



214 Industrial Combinations and Trusts 

count stated," and upon receipt of their several drafts so made the 
treasurer shall accept the same payment at T. Mellon & Sons', and 
charge the amounts thereof to the fund created by the payments 
made by the members who shipped in excess of their proportion 
during the month for which the "account stated" was made, 
thus closing that account each month. 

Fourth. To insure the rendering of the statements and the settle- 
ment of the balances due between the members of this association, 
at the time required by the provisions of this agreement, each mem- 
ber (the New Jersey Steel & Iron Co. excepted) shall, immediately 
after the signing of this agreement, remit to the treasurer its or 
their check or sight draft for the sum of $2,500, and shall, on or 
before the loth day of each month thereafter, remit its or their 
check or sight draft for $500, the said checks or sight drafts shall 
be made in favor of T. Mellon & Sons, who shall become the depos- 
itory of all the proceeds of such checks or sight drafts, which shall 
form a guaranty fund and be held by said T. Mellon & Sons during 
the continuance of this agreement, or any extension thereof, and 
disposed of finally as hereinafter provided. 

It being understood that when the said guaranty fund reaches 
the sum total of $45,000, that the payments toward said fund shall 
thereupon cease. 

Fifth. Whereas it has been agreed by and between the several 
other members and the New Jersey Steel & Iron Co. that the works 
of the said New Jersey Steel & Iron Co. shall remain inoperative in 
the manufacture of I beams and channels, of sizes coming under the 
provision of and during the hfe of this agreement, in consideration 
of which the New Jersey Iron and Steel Co. shall receive from this 
association the sum of $5,000 per month. Said sum of $5,000 to be 
paid by the several other members in proportion to their allotments 
as shown by the table in the first clause of this agreement. On the 
tenth day of each mionth the treasurer shall draw at sight on the 
respective parties to this agreement for the proportionate amount 
of the indebtedness, and when all such drafts shall have been paid, 
he shall immediately notify the New Jersey Steel & Iron Co. to 
draw upon him at sight for the sum of $5,000, thus closing this 
account each month. In case any draft which the treasurer shall 
make, as in this clause provided, shall not be promptly paid, the 
amount of such draft shall be taken from the deposition the guar- 
antee fund of the party failing to pay such draft, and payment 
made to the New Jersey Steel & Iron Co., the same as if all such 



Pools and Associations 215 

drafts of the treasurer has been paid, and such party shall imme- 
diately remit to the treasurer an amount sufficient to make good the 
sum so taken from the guarantee fund.^ 

Sixth. Whereas it has been agreed by and between all the mem- 
bers of this association (the New Jersey Steel & Iron Co. excepted) 
to exempt all members except the Phoenix Iron Co., to the extent 
of 5 per cent of 300,000 tons, in the proportions expressed in the 
table of allotments contained in clause i of this agreement; the 
aforesaid Phoenix Iron Co. to be exempted to the amount of 1 1 ,000 
tons; the pool assessment shall not be charged on any member's 
shipments until it or they shall have completed its or their quoto 2 of 
exempted tonnage. 

Seventh. It is required that all I beams and channels shipped 
into the States bordering on the Pacific coast and to be actually 
used in the territory into which it is shipped and also all I beams and 
channels actually exported for use outside the limits of the United 
States be reported to the commissioner together with bills of lading 
or other evidence of exportation satisfactory to him (said evidence 
to be confidential and not to be circulated among the members). 
Such tonnage will be deducted from the member's report and the 
agreed pool tax charged on the balance. 

Eighth. Upon receiving the written request of any one member 
of the association the commissioner shall call a meeting of the 
parties to this agreement, to be held within five days from the date 
of his receiving such written request. 

Ninth. If at any time any of the parties hereto shall have reason 
to suppose that any other party or parties to the agreement have 
violated any of the provisions of this agreement, the said party so 
supposing the agreement has been violated shall file with the com- 
missioner of the association a bill of complaint against the party 
or parties so suspected of such violation, which bill of complaint 
shall fully set forth the act or acts complained of, together with all 
the matters or things connected therewith. The said bill of com- 
plaint shall be in writing and shall furnish all the evidence that can 
be submitted in connection with the alleged violation, and upon 
receipt by the commissioner of any and all bills of complaint as 
aforesaid, he shall forthwith use his best offices to have the accuser 
and accused arrive at an amicable settlement, failing in which, he 
shall submit all the information he may have to the executive com- 

* This sentence is thus in the original. — Ed. 
2 Thus in the original. — Ed. 



2l6 INDUSTRLA.L COMBINATIONS AND TRUSTS 

mittee for action. If the said executive committee shall determine 
that the charges have been sustained, they, the executive com- 
mittee, shall impose a penalty not less than $i,ooo, nor more than 
the amount standing to the credit of the member so punished in 
the guaranty fund at the time the fine is imposed upon the party so 
adjudged as having violated the agreement, but if the executive 
committee shall determine that the charges have not been sustained 
they shall dismiss the complaint from further consideration by 
them. It being further understood and agreed that no member of 
the executive conunittee shall act upon any bill of complaint made 
by or made against the m_ember of the association which he repre- 
sents, nor shaU any representative of a member of the association 
vote upon any bill of complaint brought by or brought against the 
member of the association which he represents. Any penalty im- 
posed by the executive committee vdll be collected by the treasurer, 
deducting the amount thereof from the deposit made by the mem- 
ber against whom the penalty is imposed to the guaranty fund, as 
provided for in clause fourth of this agreement, T\-ithin two weeks 
after such penalty is thus imposed, the sum thereof shall be trans- 
ferred pro rata as per allotments to the accounts of the members 
of the association, excluding the member against whom the 
penalty is imposed, by the treasurer of the association, in 
which case the mem^ber so punished shall immediately remit an 
amount sufficient to make good the sum taken from the guaranty 
fund. 

In case the offending member should appeal to the association 
and the action of the executive committee should not be sustained 
by a majority vote of said association, then the fine imposed shall 
be remitted and any sum that the member may have paid into the 
association by reason of this shall be returned. 

Tenth. No member of this association (the New Jersey Steel & 
Iron Co. excepted) shall make any lump-sum bid, nor shall they or 
it erect any building, directly or indirectly. This appHes only to 
members as "Rolling Mills." Any question arising as to the inter- 
pretation of this clause shall be referred to the commissioner for 
his immediate decision. 

Eleventh. No consideration in the nature of brokerage or com- 
mission is to be allowed, except to the accredited agents of the 
parties to this agreement, whose names shall be on file -v^-ith the 
commissioner; and in no case will it be permissible for such com- 
mission to be divided. 



Pools and Associations 217, 

No sales or contracts shall be made to or with middlemen except 
on specific work for immediate specifications. 

All sales between parties to this agreement shall be at pool prices, 
as provided in agreement "B," and all shipments shall be reported 
by the manufacturer, on which the pool tax will be charged the 
same as to outside parties, the purchaser also to report shipments 
of all such material so bought, for which they shall claim and 
receive credit. 

Twelfth. At any meeting of the members of this association, 
called by the commissioner as herein provided, any party or parties 
may give notice of withdrawal herefrom, but no such notice shall 
take effect until January i, 1898. If the aggregate pool percent- 
ages of the parties giving such notice of withdrawal shall amount 
to less than 4 per cent, this agreement shall continue in force as 
between the remaining parties, but if such aggregate shall amount 
to 4 per cent or more this agreement shall terminate at the time 
so fixed. But statements shall continue to be rendered of all I 
beams and channels shipped up to date of its termination, the 
pool assessment. 1 

Thirteenth. The percentages of the parties hereto or of their 
successors (including as such any concern mainly owned or con- 
trolled by any of the said parties or any of their stockholders), 
shall be maintained in the same relative proportion until other- 
wise agreed, and if any party shall at any time have more than one 
successor or allied concern, the aggregate percentages allotted to 
itself and all its successors and allied concerns shall not exceed 
the percentage that the original concern would have been entitled 
to if it had continued alone its relations to the other parties under 
this agreement, and the parties thereto shall include in their state- 
ment the shipments for such successors and allied concerns. 

Fourteenth. In case other firms or corporations are admitted as 
partners to this agreement, the percentage of the pool allotted to 
each shall be deducted pro rata from the percentages of the members 
immediately prior to the time of its admission; and in case any of 
the parties hereto or any of the parties hereafter admitted shall 
withdraw, the percentage of the pool allotted to such withdrawing 
party or parties shall be added pro rata to the percentages of the 
parties remaining. In such case the commissioner shall compute 
and report the new percentages to the nearest one-hundredth of 
one per cent, which degree of accuracy shall be deemed sufficient. 
1 This sentence is thus in the original. — ^Ed. 



2l8 INDUSTILLA.L COMBIXATIOXS AXD TRUSTS 

Fifteenth. The allotment herein made of percentages, the amount 
of the guaranty fund, and the payment made to the Xew Jersey 
Steel & Iron Co., as herein pro\ided, shall not be altered, amended, 
or changed in any respect, except by the unanimous consent of 
all the parties to this agreement, but any other matters or things 
whatsoever which concern this agreement or the association formed 
thereby or any regulations hereafter adopted, may, at any time, be 
abrogated or amended or altered at any meeting of the members 
of this association, pro\dded that two-thirds of the members of the 
association are present thereat, that they represent at least two- 
thirds of the percentage allotted to all, and vote in favor thereof. 

Sixteenth. To provide for the prompt pa}Tnent of all salaries, 
rents, and other expenses (except the paAmient which is to be made 
monthly to the Xew Jersey Steel & Iron Co.), a general expense 
fund shaU be called in as needed by the treasurer in proportion to 
the percentage allotted each member in the association. 

Seventeenth. Xo matter of account or understanding outside of 
this agreement shall affect the settlements herein provided for, 
either as an offset or otherwise, nor shall any written or unwritten 
agreement of the parties hereto, or any of them, to estabhsh and 
maintain uniformity in prices, or any controversy arising out of 
such agreement, or any failure to carr\- out any of its pro\dsions, 
or to maintain prices, affect in any way the rendering of the state- 
ments and the making of the settlements therein required. 

Eighteenth. Whenever this agreement shall have been termi- 
nated the balance of the deposit, "^ith accumulated interest, remain- 
ing in the hands of the treasurer to the credit of each party, after 
pro^dsion shall have been made for the pa}'ment of all expenses, 
shall be returned to it, provided it shaU have rendered all the state- 
ments required from it under this agreement and have paid all its 
debtor balances. In case any party hereto shaU not have fulfilled 
its money obligations under this agreement, the amount it has on 
deposit in the guarantee fund shall be appHed toward the fulfill- 
ment of those obligations, and the excess, if any, returned to it. 
But in case any party shall not have fulfilled its agreement to 
render the monthly statements imder this agreement, the amount 
it has on deposit in the guarantee fund, or the excess thereof, as 
above stated, shall be di\dded among the parties who shall have 
fulfilled their obligations under this agreement, in the proportion 
of their respective percentages. 

Xineteenth. At the expiration of this agreement, or at any time 



Pools and Associations 219 

the president of the association, together with the majority of the 
executive committee, determine that it is advisable that all or any 
part of any funds belonging to the association shall be withdrawn 
from the depository then holding the same, upon notification by the 
present and a majority of the executive committee of such deter- 
mination being given the treasurer, he, the treasurer, shall make and 
sign a sight draft or check upon the depository so holding such funds 
for the sum named in such notification, which check or sight draft 
shall then be countersigned by the president or one member of the ex- 
ecutive committee, and when such checks or sight drafts are so made 
and signed by the treasurer and countersigned by the president or 
one member of the executive committee and duly presented for pay- 
ment at the ofi&ce of the depository holding the funds of the associa- 
tion, all such checks and sight drafts shall be paid by such depository. 

Twentieth. For all purposes of this agreement a ton shall be taken 
and held of 2,000 pounds. 

In witness whereof the parties hereto have signed this agreement 
the day and year first above written. 

Exhibit 7 

the steel plate association * 

This Agreement, made and entered into this ninth day of No- 
vember, 1900, by and between: 

Carnegie Steel Company. 

Jones & Laughlins, Limited. 

Illinois Steel Company. 

Crucible Steel Company. 

Otis Steel Company. 

Tidewater Steel Company. 

Lukens Iron & Steel Company. 

Worth Bros. Company. 

Central Iron & Steel Company. 

The American Steel & Wire Company. 

The Glasgow Iron Company. 

WITNESSETH: That the above said parties have mutually agreed 

to and with each other to form an Association for mutual interests, 

and to enable them to pay liberal wages to their workmen, to be 

known as The Steel Plate Association of the United States. 

^ United States of America v. United States Steel Corporation. Petition, Ex- 
ibit A, pp. 70-75. 



220 Industrial Combinations and Trusts 

First: Each of the parties above named being manufacturers and 
sellers of steel plates, shall by reason of such manufacture and sale, 
be entitled to membership in this Association, and each of the par- 
ties hereto shall be entitled to portion of all shipments in the follow- 
ing proportions: 

Carnegie Steel Company 46.25 

Jones & Laughlins, Limited 4.75 

Illinois Steel Company 11.00 

Crucible Steel Company of America 4.50 

Otis Steel Company 2.50 

Tidewater Steel Company 3.00 

Lukens Iron & Steel Company 7.50 

Worth Bros. Company 7.00 

Central Iron & Steel Company 8.00 

American Steel & Wire Company 5.50 

Glasgow Iron Company to the extent of sales and out- 
put up to 40,000 tons, should they be able to accom- 
plish them, prior to December 31st, 1901. 

Second: The officers of this Association shall be as follows: a 
President, a Treasurer, a Commissioner and an Executive Com- 
mittee consisting of six members, including the President. The 
conclusions of all the Executive Committee meetings shall be at 
once communicated to all members of this Association. 

Third: Each member of this Association shall, on or before the 
tenth day of December, 1900, and on or before the tenth day of 
every month thereafter during the term of this Agreement, or any 
extension thereof, render to the Commissioner of this Association, 
a statement, which statement shall be sworn to, or affirmed to, by 
one of the principal Executive officers of the member so making the 
report, or in case the member so making the report is a co-partner- 
ship, then, in that case, the report shall be sworn to, or affirmed to, 
by one of the firm holding membership in this Association, which 
oath or affirmation shall be to the effect that the report so m.ade, 
is a true and correct report of all the material described in the First 
Clause of this Agreement, which was shipped by the member mak- 
ing the report during the month for which the report is made; the 
form of the report, and oath of affirmation as to its correctness, shall 
be furnished by the Commissioner, and shall include a statement of 
the rolling production for each month; and upon the Commissioner's 
receiving from the respective members their reports, as afore- 



Pools and Associations 221 

said, he the Commissioner, shall render to each member monthly, 
as soon as possible after the receipt of all the statements of all 
the members, copies of statements last rendered by each member, 
and shall forthwith "State an Account," charging each member, 
who has shipped during the month more than its or their percentage 
of the total amount shipped by all the members of the Association, 
the sum of Thirty-five hundredths of a cent (.35c) per pound on 
each and every pound of such excess, and crediting each member 
who has not shipped its or their percentage of the total amount 
shipped by all members of the Association, with the sum of thirty- 
five hundredths of a cent (.35c) per pound on each and every pound 
with which it or they fail to ship during the month for which the 
reports are made, as aforesaid, and as a basis of calculation making 
such "Statement of Account," the Commissioner shall use the ta- 
ble of percentages as set forth in the First Clause of this Agreement; 
and upon the Statement of any such account by the Commissioner, 
he shall immediately mail a copy thereof to each member of this 
Association, and within five days after the receipt of any account by 
the member of this Association, which account shall show that the 
member receiving the same is indebted to the Association, the mem- 
ber so receiving its or their account, showing its or their indebted- 
ness, shall forward to the Treasurer a check or sight draft drawn to 
the order of T. Mellon & Sons, in payment of such indebtedness 
which check or sight draft the Treasurer shall deposit in the said 
Mellon & Sons' Bank, Pittsburg, Pa., to the credit of this Associa- 
tion, and to remain to the credit of the member paying on excess 
of shipments and being increased or diminished as each month's 
business shows. It shall be the right and privilege of each member, 
who shall not have shipped his full percentage, to call, through the 
Commissioner on members who have made an excess, to transfer to 
the short member a sufiicient amount of tonnage, or otherwise 
enable him to fill up his order book. It being the intent of this 
Agreement that each member shall ship his entire percentage, and 
at the end of each year it shall be the duty of the Commissioner to 
so arrange between the members as to have the pool balanced; but 
any member unable, at the end of each year, to produce his allot- 
ment, after first deducting his exempted tonnage; which shall be 
divided among other members of the pool, in proportion to their 
respective tonnage allotments. 

Fourth: To insure the rendering of the statements and the faith- 
ful adherence of each party to the terms of this Agreement, a guar- 



222 Industrial Combinations and Trusts 

antee fund of $100,000 shall be formed by the payment on or before 
December 3rd, 1900, of $1,000 for each per cent, of allotment, as 
provided for in the First Clause of this Agreement to the Treasurer, 
which fund shall be deposited or invested as directed by the Execu- 
tive Committee in trust for the members, in the same proportion 
as received. Subject however, to such forfeiture or penalty as may 
be declared by a vote of the remainder of the members against any 
member violating the terms of this Agreement, as hereinafter pro- 
vided. 

Fifth: Whereas, it has been agreed by and between all the mem- 
bers of this Association to exempt certain tonnage to cover orders 
already taken, it is agreed that such exemption shall be as follows: 

Carnegie Steel Company 140,000 tons. 

Jones & Laughlins, Limited 9,400 " 

Illinois Steel Company i5j394 " 

Crucible Steel Company of America 2,687 " 

Otis Steel Company Ij74o " 

Tidewater Steel Company 2,520 " 

Lukens Iron & Steel Company 5j778 " 

Worth Bros. Company 3,863 " 

The American Steel & Wire Company 15,116 '^ 

Glasgow Iron Company 7,965 " 

It is understood that those who hold exemptions under this agree- 
ment are to proportion the shipments applying to them in monthly al- 
lotments, between the date of this Agreement and January ist, 1902, 
and such shipments shall not be subject to the pool assessment. 

Sixth: It is required that all plates shipped into the states 
bordering on the Pacific Coast, and to be actually used in the ter- 
ritory into which it is shipped, and also all plates actually exported 
for use outside the Umits of the United States, be reported to the 
Commissioner, together with Bills of Lading, or other evidence of 
exportation, for actual use abroad, satisfactory to him (said evi- 
dence to be confidential and not to be circulated among the mem- 
bers.) Such tonnage will be deducted from the member's report, 
and the agreed pool tax charged on the balance. 

Seventh: Upon receiving the written request of two members of 
the Association, stating the object, the Commissioner shall, upon 
the approval of the Executive Committee, call a meeting of the 
parties to this agreement, to be held from five days from date of 
his receiving such written request. 



Pools and Associations 223 

Eighth: If at any time any of the parties hereto shall have reason 
to suppose that any other party or parties to the Agreement have 
violated any of the provisions of this Agreement, the said party so 
supposing the Agreement has been violated, shall file with the Com- 
missioner of the Association, a Bill of Complaint against the party 
or parties so suspected of such violation, which Bill of Complaint 
shall fully set forth the act or acts complained of, together with all 
the matters or things connected therewith; the said Bill of Com- 
plaint shall be in writing, and shall furnish all the evidence that 
can be submitted in connection with the alleged violation, and upon 
receipt by the commissioner of any and all Bills of Complaint, as 
aforesaid, he shall forthwith use his best offices to have the accuser 
and accused arrive at an amicable settlement, failing in which, he 
shall then submit all the information he may have to the Executive 
Conamittee for action; if the said Executive Committee shall deter- 
mine that the charges have been sustained they, the Executive 
Committee, shall impose a penalty of not less than One Thousand 
Dollars, nor more than the amount standing to the credit of the 
member, so punished, in the Guarantee Fund at the time the fine is 
imposed upon the party so adjudged as having violated the Agree- 
ment, but, if the Executive Committee shall determine that the 
charges have not been sustained, they shall dismiss the complaint 
from further consideration by them. It is further understood and 
agreed that no member of the Executive Committee shall act upon 
any Bill of Complaint made by, or made against the member of the 
Association which he represents nor shall any representative of a 
member of the Association vote upon any Bill of Complaint brought 
by or brought against the member of the Association he represents. 
Any penalty imposed by the Executive Committee will be collected 
by the Treasurer, deducting the amoimt therefrom the deposit 
made by the member, against whom the penalty is imposed, to the 
Guarantee Fund, as provided for in Clause Fourth of this Agree- 
ment, within two weeks after such penalty is thus imposed, the 
sum thereof shall be transferred pro rata as per allotments to the 
accounts of the members of the Association excluding the member 
against whom the penalty is imposed, by the Treasurer of the 
Association, in which case the member so punished shall immedi- 
ately remit an amount sufficient to make good the sum taken from 
the Guarantee Fund. 

In case the offending member shall appeal to the Association and 
the action of the Executive Committee shall not be sustained by a 



224 Industrial Combinations and Trusts 

majority vote of the members of the said Association, then the fine 
imposed shall be remitted, and any sum that the member may have 
paid into the Association, by reason of this shall be returned. 

Ninth: No consideration, in the nature of brokerage or com- 
mission, shall be paid to any one on sales of plates, on or after 
January ist, 1901. 

All sales between parties to this Agreement shall be at pool prices, 
as provided in Agreement "B," and all shipments shall be reported 
by the manufacturer, on which the pool tax will be charged the 
same as to outside parties, the purchaser also to report shipments 
of all such materials so bought, for which they shall claim and re- 
ceive credit. 

Tenth: At any meeting of the members of this Association, called 
by the Commissioner, as herein provided, any party, or parties may 
give three months notice of withdrawal herefrom but no such no- 
tice shall take effect prior to January ist, 1902. Statements shall 
continue to be rendered of ail plates shipped up to date of such with- 
drawal, the pool assessment to be charged thereon. 

Eleventh: In case other firms or corporations are admitted as 
partners to this Agreement, the percentage of the pool alloted to 
each shall be deducted pro rata from the percentages of the mem- 
bers immediately prior to the time of its admission; and in case any 
of the parties hereto, or any of the parties hereafter admitted shall 
withdraw, the percentage of the pool alloted to such withdrawing 
party or parties shall be added pro rata to the percentages of the 
parties remaining. In such case, the Commissioner shall compute 
and report the new postages to the nearest one hundredth of one 
per cent., which degree of accuracy shall be deemed sufficient. 

Twelfth: The Agreement herein made of percentages, the 
amount of the Guarantee Fund as herein provided, and the Agree- 
ment to maintain minimum fixed rates as covered in Agreement 
"B", shall not be altered, amended or changed in any respect, ex- 
cept by the unanimous consent of all parties to this agreement. 

Thirteenth: To provide for the prompt payment of all salaries, 
rents and other expenses, a general expense fund shall be called in 
as needed, by the Treasurer, in proportion to the percentage alloted ^ 
each member of the Association. 

Fourteenth: No matter of account, or understanding outside 
of this Agreement, shall affect the settlements herein provided for; 
either as an offset or otherwise, nor shall any written or unwritten 
1 Thus in original. — Ed. 



Pools and Associations 225 

agreement of the parties hereto, or any of them establish and main- 
tain uniformity prices, or controversy arising out of any such agree- 
ment or any failure to carry out any of its provisions or to maintain 
prices, affect in any way the rendering of the statements and the 
making of the settlements herein required. 

Fifteenth: Whenever this Agreement shall have been termi- 
nated the balance of the deposit, with accumulated interest, remain- 
ing in the hands of the Treasurer to the credit of each party, after 
provision shall have been made for the payment of all expenses, shall 
be returned to it, provided it shall have rendered all the statements 
required from it under this Agreement, and have paid all its debtor 
balances. In case any party hereto shall not have fulfilled its money 
obligations under this agreement, the amount it has on deposit 
in the Guarantee Fund shall be applied towards the fulfillment of 
those obligations, and the excess, if any, returned to it. But in 
case any party shall not have fulfilled its agreement, the amount 
it has on deposit on ^ the Guarantee Fund, or the excess thereof, as 
above stated, shall be divided among the parties who shall have 
fulfilled their obligations under this agreement in the proportion of 
their respective percentages. 

Sixteenth: For all purpose ^ of this contract, a ton shall be taken 
and held as Two Thousand Pounds, (2,000). 

In witness whereoe the above parties have signed this Agree- 
ment the day and year first above written. 

Exhibit 8 

by-laws of the eastern states retail 

lumber dealers association ^ 

Article I. 
Name and territory. 

The name of this organization shall be the Eastern States Retail 
Lumber Dealers' Association, and the territory embraced by it 
shall be that covered by the association admitted to membership. 

^ Thus in original. — Ed. 

^ United States of America v. The Eastern States Retail Lumber Dealers As- 
sociation. Original Petition, In the Circuit Court of the United States for the 
Southern District of New York, Exhibit A, pp. 70-73. This Association was 
organized at New Haven, Conn., in September, 1902. — Ed. 



226 Industrial Combinations and Trusts 

Article II. 
Objects. 

The objects of this association shall be to promote and foster a 
unity of action in all matters pertaining to the legitimate conduct 
of the retail lumber trade, to encourage friendly relations between 
the several associations whose members are members of this associa- 
tion, to correct abuses and irregularities from which the trade suf- 
fers, to secure and disseminate any and all proper information for the 
mutual convenience, bejiejit,' or protection of its membership} 

Article III. 
Restrictions. 

No rules, regulations, or by-laws shall be adopted which will in 
any manner stifle competition, limit production, regulate prices, 
restrain trade, or provide for the pooHng of profits; no coercive 
measures shall be practiced or adopted toward any retailer or whole- 
saler; nor shall any discriminatory practices on the part of this 
association be used or allowed against any retailer or wholesaler 
for the reason that he may or may not be a member of any associa- 
tion, and no promises or agreements of any kind shall be requisite 
to membership in this association other than those contained in this 
constitution, nor shall any penalties be imposed for any cause what- 
soever. 

Article IV. 

Officers. 

Section i. The officers of this association shall consist of a presi- 
dent, vice president, secretary, who shall also act as treasurer, who 
shall be elected by ballot at each annual meeting, and with two 
other members, who shall also be elected at each annual meeting, 
shall constitute the board of directors, and a majority of the votes 
cast shall be necessary to a choice. All officers shall hold office 
until their successors are duly elected and qualified. No officer 
shall have power to make or enter into any contract, obligation, or 
agreement on behalf of the association until such contract, obliga- 
tion, or agreement shall have been submitted to, and received the 
indorsement, approval, or sanction of a majority of the member- 
^ Italics are the editor's. 



Pools and Associations 227 

ship. No officer shall obligate the association for any expenditure 
of money above the sum of $25 without the approval of a majority 
vote. 

Sec. 2. Until the first annual meeting the vice president, secre- 
tary, and treasurer need not be members of the board of directors. 

Article V. 
Duties of officers. 

Each officer of the association shall perform the duties usually 
devolving upon the occupant of such office. It shall be the duty of 
the secretary to perform such labors on behalf of the association as 
he may be called upon in the interim between meetings and to carry 
out all matters upon which action has been taken in meeting, un- 
less otherwise ordered. 

Article VI. 

Meetings. 

The association shall hold two regular meetings each twelve 
months, the annual meeting on the first Wednesday in October, in 
the city of New York, and the second meeting at such time and 
place as may be determined upon. Special meetings may be caUed 
by the president when considered necessary, or whenever the repre- 
sentatives of the three associations shall unite in asking that such 
a meeting be called. Notices of all meetings shall be given to the 
members of this association at least five days before the date set for 
such meeting. 

Article VII. 

Membership. 

Section i. The members of this association shall be composed of 
three members, one of whom shall be the secretary of each of the 
following associations: The New York Lumber Trade Association, 
the New Jersey Lumbermen's Protective Association, the Lumber 
Dealers' Association of Connecticut, the Lumber Dealers' Associa- 
tion of Rhode Island, the Massachusetts Retail Lumber Dealers' 
Association, the Retail Lumbermen's Association of Philadelphia, 
and of three members, one of whom shall be secretary of such other 
regularly organized bodies representing the retail lumber dealers' 
interests as shall be elected by a majority vote at any regular meet- 
ing of this association. 



228 Industrial Combinations and Trusts 

Sec. 2. All members shall enjoy equal privileges except that upon 
the final vote on all questions and at elections, and on amendments, 
shall be decided under the unit rule, the three members of each 
association being entitled to only one vote for such three members. 

Article VIII. 
Committees and delegates. 

Whenever action may require the appointment of committees to 
perform special work, or necessity calls for the appointment of a 
delegate, or delegates, the president shall be authorized to notify 
the members of this association, stating in writing the object for 
such appointment, and upon receiving a majority vote favorable 
thereto he shall have power to act in the making of such appoint- 
ment as he may deem proper. 

Article IX. 
Settlements of disputes. 

Any and all claims referred to this association for settlement 
shall be submitted in writing unless otherwise decided, with such 
accompanying documentary evidences as the parties thereto may 
consider necessary, and all parties interested must agree to accept 
the decision of this association as final. 

Article X. 

Expenses. 

To meet the expenses incurred by this association, an annual 
fee of $io shall be paid by the members of each association jointly 
at the annual meeting, and all other expenses shall be pro rata, 
based on the amount received from annual dues for the previous 
year by the association of which they are members. 

Article XI. 

Amendments. 

Amendments to these articles may be made at any meeting by a 
two-thirds vote of the members present, provided notice of such 
amendment shall have been included in the call for the meeting. 



Pools and Associations 229 

Article Xll. 
Quorum. 

A quorum of this organization for the transaction of business 
shall consist of not less than one of the members of three of said 
associations. 

Exhibit 9 

naval stores agreement ^ 

Memorandum of agreement made and executed on this 

day of March, A. D. 1905, between the Patterson-Downing 
Company, a corporation of West Virginia, of the first part, herein- 
after called "Patterson"; the S. P. Shotter Company, also a corpo- 
ration of West Virginia, of the second part, hereinafter called 
"Shotter"; the Societe Anonyme des Produits Resineux, a 
corporation of the Kingdom of Belgium, of the third part, herein- 
after called "Anonyme"; Nickoll & Knight, a mercantile firm 
composed of Alexander Knight, of the city of London, England, of 
the fourth part, hereinafter called "Nickolls"; and the Globe Na- 
val Stores Company, also a corporation of West Virginia, of the 
fifth part, hereinafter called "GLOBE." 

Whereas Globe is chartered and organized for the purpose of buy- 
ing and selling and generally dealing in spirits of turpentine, includ- 
ing turpentine chemically extracted by artificial process from pine 
wood, and which is commonly called wood turpentine; and 

Whereas, Patterson, Shotter, Anonyme, and Nickolls as a part of 
their respective business severally deal in such turpentine product; 
and 

Whereas, further the said Patterson, Shotter, Anonyme, and 
Nickolls have each severally subscribed to the capital stock of said 
Globe in the following proportions, viz: 

Patterson to 34% thereof, or 340 shares; 
Shotter to 21 -3^% thereof, or 215 shares; 
Anonyme to 26-3^% thereof, or 265 shares; 
Nickolls to 18% thereof, or 180 shares; 

^ The United States of America v. American Naval Stores Company et al. Pe- 
tition in Equity, In the District Court of the United States for the Eastern Divi- 
sion of the Southern District of Georgia, Exhibit A, pp. 25-36. In this case the 
Globe Naval Stores Company appears from the agreement, and so the Government 
alleges, to be merely a clearing house for the pooling of profits and losses. — Ed. 



230 Industrial Combinations and Trusts 

all of said shares being of the par value of fifty dollars ($50) per 
share; and 

Whereas, Globe desires to acquire from the first, second, third, 
and fourth parties, respectively, their several turpentine businesses, 
and said first, second, third, and fourth parties are willing to dispose 
of the same on the terms and conditions hereinafter set forth; and 

Whereas, the said Patterson and Shotter are extensive dealers in 
American rosin, and one of the considerations moving them to enter 
into this contract is the regulation of the rosin business as between 
themselves and the said Anonyme and Nickolls: 

Now, then, this agreement witnesseth, That in consideration of 
the premises and of one dollar by each of said parties to each of the 
other in hand paid, the receipt whereof is hereby acknowledged, the 
parties hereto mutually covenant and agree each with the others 
as follows: 

1. The said Patterson, Shotter, Anonyme, and Nickolls severally 
sell, assign, and set over to Globe their respective turpentine busi- 
nesses upon the terms and subject to the limitations hereinafter 
mentioned. 

2. The said Globe, in consideration of such sales and assign- 
ments, agrees to pay to Patterson, Shotter, Anonyme, and Nickolls, 
respectively, seventeen thousand dollars ($17,000), ten thousand 
seven hundred and fifty dollars ($10,750), thirteen thousand two 
hundred and fifty dollars ($13,250), and nine thousand dollars 
($9,000), in full-paid stock at par of the Globe Company. 

3. It is understood and agreed that said Patterson, Shotter, 
Anonyme, and Nickolls shall severally act as the agents and repre- 
sentatives of said Globe in the buying and selHng of turpentine 
products, their several turpentine businesses, however, being con- 
ducted as heretofore in their own names, but for account of Globe. 

4. It is understood and agreed that James Farie, jr., of Savannah, 
Georgia, is under contract to Nickolls whereby his entire naval 
stores business shall be carried on as heretofore, that is to say, the 
turpentine business of the said Farie shall be conducted by him for 
account of Globe, and the rosin business for the joint account of 
Patterson and Shotter, it being expressly understood that the said 
James Farie, jr., and Andrew Farie, also of Savannah, Georgia, 
shall have no interest of any kind, either directly or indirectly, and 
shall not in any manner or form, deal or operate in spirits of turpen- 
tine or rosin or other products of pine trees, except as provided in 
said contract, a copy of which is attached hereto, and in considera- 



Pools and Associations 231 

tion of the premises NickoUs hereby assigns all their rights in and 
under said contract to Globe, and on the other hand, Globe hereby 
takes the place of Nickolls in said contract and assumes all the 
burdens and obligations thereunder and shall be entitled to all 
benefits thereof, provided, however, that Globe shall not be re- 
quired by reason of said contract to pay to the said James Farie, 
jr., a sum greater than twenty-one thousand five hundred dollars 
($21,500) per annum, it being further understood that said Nickolls 
shall contribute the sum of seven thousand five hundred dollars 
($7,500) for the ofl&ce expenses of said James Farie, jr., in Savannah, 
Georgia. 

5. It is understood and agreed that said Patterson, Shotter, Anon- 
yme, and Nickolls, in conducting their several businesses as the 
agents and for account of Globe as aforesaid, shall confine their 
operations to regular business transactions, so as to assure as far as 
possible reasonable and legitimate profits, it being expressly under- 
stood that neither of said parties shall be at liberty to do a specu- 
lative business without the consent of Globe. 

6. It is understood and agreed that neither Patterson, Shotter, 
Anonyme, or Nickolls shall hold any interest or directly or indirectly 
deal in American turpentine, except as the agents and for account 
and benefit of Globe, it being understood that by American turpen- 
tine is meant the spirits of turpentine and wood turpentine which 
is concentrated at all and every of the Atlantic seaports of the 
United States of America, and which either of said first four par- 
ties may handle and sell as being from said Atlantic seaports. 

7. It is understood and agreed that this agreement comprehends 
and includes as part of the turpentine business herein purchased 
the sale of French and Spanish turpentine exported from France 
and Spain, but it does not include any French turpentine handled 
or sold in France itself. 

8. It is understood and agreed that this contract does not cover 
any turpentine business which Patterson and Shotter may control 
in the Gulf ports of the United States, it being expected that the 
domestic consumption will absorb all the receipts coming to said 
Gulf ports. In the event, however, the domestic consumption does 
not absorb all of such Gulf port receipts, then Patterson and Shot- 
ter, respectively, agree to turn over to Globe the surplus receipts, 
provided, however, that the quantity of such surplus must be 
specified and declared on the fifteenth (15th) and last days of each 
month and must be charged to said Globe at the average Savannah 



232 Industrial Combinations and Trusts 

quotations of the previous fifteen days, with the exception, however, 
of a surplus at New Orleans, not exceeding twenty thousand 
(20,000) barrels per annum, for which Globe hereby agrees to pay 
one and a half (i-3^) cents per gallon above the average quotations. 
Should the Savannah quotations during the periods affected be 
fictitious, the average price to be paid must be on the same basis 
that has been applied to the receipts at the Atlantic closed ports. 
Patterson and Shotter severally agree that they will make no charge 
for interest, storage, and fire insurance on such surplus receipts of 
the Gulf ports up to the day on which they declare the same. After 
said date the charges will be assumed and borne by said Globe, 
provided that the same shall not exceed the charges now in force in 
Savannah, Georgia. 

9. It is understood and agreed that Patterson and Shotter and 
Nickolls (the latter operating through James Farie, jr., at Savannah, 
Georgia) shall continue to conduct their respective business ^ in 
turpentine as hereinbefore defined, but for the account and benefit 
of Globe. As compensation for their services in the premises said 
Patterson and Shotter shall be allowed a commission of one per 
cent (1%) on all sales made by them, respectively, provided, 
however, that said Patterson and Shotter shall only receive one- 
half Q/2) of one per cent (1%) on sales made to the Pratt works in 
Nevv York, Prince in Boston, and on all sales to Philadelphia. It 
is further understood that on sales, transfers, and divisions of re- 
ceipts to and with the Standard Oil Com^pany no commission will 
be charged except upon such quantities as will reduce the commit- 
ments of Patterson and Shotter under their contracts with the 
Standard Oil Company in the Gulf States, upon which quantities 
they will be allowed a commission of one per cent (1%). 

10. It is understood that Nickolls shall not sell more than fif- 
teen thousand (15,000) barrels per annum. 

11. It is understood and agreed that Anonyme will conduct for 
the company and for its benefit any business offered for export in 
Spanish and French turpentine, and that said Anonyme shall be 
allowed a commission of one per cent (1%) on all Spanish turpen- 
tine, and a commission of one-half (3^) of one per cent (1%) on 
maximum fifteen thousand (15,000) barrels of French turpentine. 

12. It is understood and agreed that the operations of Patterson, 
Shotter, Anonyme, and Nickolls for account of Globe shall be 
conducted and entered under a turpentine account, and shall in- 

^ Thus in original. — Ed. 



Pools and Associations 233 

elude all tra.nsactions, whether actual deliveries or contracts, where 
settlement is made in lieu of actual delivery. It is understood 
that Patterson, Shotter, Anonyme, and Nickolls, respectively, 
shall each operate in their own names, and with their own organiza- 
tions, the said Globe being responsible for any losses that may be 
sustained through the nonfulfillment of contracts or bad debts. 

The turpentine account shall be charged at cost with all of the 
turpentine bought for account of Globe, and such account shall be 
credited with the result of all sales made for Globe. The said 
account shall not be charged with any of the ordinary expenses of 
maintenance of the respective business ^ of said Patterson, Shotter, 
Anonyme, and Nickolls, but only with the actual expenses of 
storage, handling, marine and fire insurance, cabling and telegraph- 
ing, legitimate commissions to agents and brokers for effecting 
sales, and interest on advances; or, in other words, only actual out- 
lays of money other than office expenses shall be charged to turpen- 
tine account. 

It is understood that the first four parties, respectively, shall 
insure and keep insured against fire and marine risk all turpentine 
purchased and held by them, respectively, for account of Globe, 
and in the event of any loss being incurred by reason of either of 
said first four parties faihng to insure and keep insured any turpen- 
tine so purchased or held for account of Globe, such loss shall be 
borne by the party so in default; provided, however, that said first 
four parties shall not be held responsible for the solvency of the 
company in which the insurance may be effected, and it is further 
understood and agreed that inasmuch as said Patterson and Shot- 
ter own and to a more or less extent operate in the name of the 
Standard Naval Stores Company as purchasing and forwarding 
agent of turpentine purchased for account of Globe, the terms and 
provisions of this agreement as to insurance shall be applicable to 
said Standard Naval Stores Company, and the said Patterson and 
Shotter hereby make themselves responsible to Globe for any loss 
which it may sustain by the failure of the said Standard Naval 
Stores Company to insure and keep insured all turpentine held by 
it, either directly or indirectly, for account of said Globe. It is 
understood that interest on moneys which may be advanced by 
either of the first four parties is to be charged at the rate of six per 
cent (6%) per annum, and in the event differences occur in regard 
to interest by reason of the different modes of bookkeeping of the 
1 Thus in original. — Ed. 



234 Industrial Combinations and Trusts 

said first four parties, it is understood that the same shall be ad- 
justed by the auditor of Globe at the half-yearly settlement. 

It is understood that Patterson, Shotter, Anonyme, and Nickolls, 
respectively, shall keep special books for turpentine, which books 
shall at all times be open to inspection of the auditor of 
Globe. 

It is understood that all transactions made by either the said 
Patterson, Shotter, Anonyme, or Nickolls for account of the com- 
pany shall be reported daily to the principal ofi&ce of the com- 
pany. 

It is further understood and agreed that settlements of profit 
and loss account between Globe and each of said first four parties 
shall take place every six months, in January and July, in each 
year, as soon as the accounts for the preceding six months can be 
audited. 

13. As part of the consideration of this contract Anonyme hereby 
agrees that it will transport by its steamers Iris and Clematis for 
account of Globe a minimum of one hundred thousand (100,000) 
barrels of turpentine and a maximum of one hundred and fifty thou- 
sand (150,000) barrels of turpentine per annum (quantity within 
said limits to be at the option of Globe) to Antwerp, Rotterdam, 
London, Liverpool, Hull, Avonmouth, and Hamburg. The steam- 
ers are to be loaded at the discretion of Globe either at Savannah, 
Brunswick, Fernandina, or Jacksonville (always providing there 
is sufficient water at these ports), but are to load at one port only. 
It is agreed that the rate of freight shall be three shillings nine 
pence (3/9) direct for forty (40) gallons gross gauge in barrels, and 
if shipped in bulk the rate shall be the same, but forty (40) gallons 
net. This rate is without primage. If said steamers shah be called 
upon to load or discharge in any two of the above named ports. 
Globe agrees to pay six hundred dollars ($600) additional for such 
loading, and six hundred dollars ($600) additional for such dis- 
charging. It is understood that Anonyme will complete the car- 
goes of said steamers with rosin or other goods at their convenience 
and for their own account and at their risk. 

It is understood that Anonyme shall not transport to Europe 
more than one hundred thousand (100,000) barrels of rosin per 
annum on the Iris or Clematis. In the event the said Iris or the 
said Clematis do not carry this stipulated amount it is understood 
that the said Anonyme may use outside steamers or sailing vessels, 
but it is distinctlv understood that in such event the quantity of 



Pools and Associations 235 

rosin to be shipped for account of said Anonyme shall not exceed 
seventy thousand (70,000) barrels, and said Anonyme further 
agrees that all rosin shipped by them for their own account shall be 
for the port of Antwerp exclusively. 

It is further understood and agreed that all rosin which Anonyme 
may sell in London or Hamburg shall be for the joint account of 
Patterson and Shotter, and in consideration thereof said Patterson 
and Shotter hereby agree to pay said Anonyme a net commission 
of five cents (5c.) per barrel of two hundred and eighty (280) pounds 
and freight at the rate of two shillings and three pence (^/3) for 
three hundred and ten (310) pounds direct Hamburg or London 
with no primage. It is understood that the quantity which may be 
sold by said Anonyme in London and Hamburg for account of said 
Patterson and Shotter shall not be less than fifteen thousand 
(15,000) nor more than twenty thousand (20,000) barrels, the quan- 
tity within said limits to be at the option of said Patterson and 
Shotter; and the said Patterson and Shotter reserve the right to 
designate either Hamburg or London. And it is further under- 
stood that said Anonyme shall not be entitled to any commission on 
any rosin which has been furnished by said Patterson and Shotter 
to complete cargoes for London, Hamburg, or any other port 
which may be agreed upon. 

Said Patterson and Shotter hereby severally agree that they will 
not sell aiiy rosin for shipment to a Belgian port, and they further 
agree that at the request of said Anonyme, and as required by them, 
they will furnish and provide rosin for the purposes and within the 
Hmitations therein specified in fair proportions from B to K, inclu- 
sive, free of charge for storage and fire insurance, and as compensa- 
tion to the said Patterson and Shotter for providing such rosin 
said Anonyme agrees to pay said Patterson and Shotter a commis- 
sion of seven and one half {j-^Q cents for every barrel of two hun- 
dred and eighty (280) pounds so provided by them. 

And said Anonyme further agrees to give to said Patterson and 
Shotter thirty (30) days' notice in writing (notice to either being 
considered as notice to both) of their requirements of rosin under 
the provisions hereinbefore set forth, and it is further understood 
and agreed that the price of rosin so to be ordered and furnished 
shall be based upon the average price of the respective grades dur- 
ing the thirty (30) days after the orders for the same have been 
received; provided, however, that if circumstances arise of such 
character which will prevent said Anonyme (acting with reasona- 



236 Industrial Combinations and Trusts 

ble discretion) from giving the notice hereinbefore mentioned, 
then, and in such case, the price of the rosin so ordered, and 
furnished shall be based upon the average price of the respective 
grade ^ at Savannah during the thirty (30) days immediately follow- 
ing the date of the receipt of the notice. 

It is further understood and agreed that for the purpose of com- 
pleting the cargoes of vessels carrying turpentine in the manner 
hereinbefore referred to, said Patterson and Shotter shall, when 
and as required by said Anonyme and Nickolls, respectively, fur- 
nish for said vessels part cargoes of rosin for their own account at 
current market freight rates, provided that said Patterson and 
Shotter shall in no case be required to furnish more than thirty per 
cent (30%) of the carrying capacity of said vessels. As the princi- 
pal consideration moving said Patterson and Shotter for making 
the freight arrangements herein set forth, said Anonyme and Nick- 
olls hereby severally agree that they will not buy or sell, either 
directly or indirectly, American rosin, except in the manner and 
under the limitations in this agreement set forth. 

14. It is further understood and agreed that if for any cause any 
or all of the first four parties shall discontinue business during the 
term of this agreement, then and in such event Globe shall have the 
right to purchase the shares of stock of the party or parties so dis- 
continuing business at par. 

15. It is understood and agreed that this agreement shall begin 
on the first day of April, 1905, and shall continue for the full term 
of five (5) years. 

16. It is further agreed that in the event any difference of opinion 
shall arise between two or more of said parties as regards the mean- 
ing of any part of this agreement, ail such differences shall be 
settled by arbitration in New York, each side selecting an arbitra- 
tor, and the arbitrators so selected, before taking knowledge of the 
dispute, shall select an umpire, and the award of the arbitrators 
shall be final. 

In witness whereof the corporations above named by their proper 
officers, and the said NickoU & Knight in proper person, have here- 
unto set their hands and affixed their seals, the seals of said cor- 
porations being duly attested by their respective secretaries, the 
day and year first above written. 

(Signatures) 

1 Thus in original. — Ed. 



Pools and Associations 237 

Exhibit 10 

tub combin. 

Memorandum of Agreement 

EDWIN L. WAYMAN 

1509 Arrott Bldg, 
Pittsburgh 

We hereby agree to execute with E. L. Wa3rman of the City of 
Pittsburg, as Licensor, on or before April 15th, 1910, a License 
Agreement for the Manufacture of Sanitary Enameled Ware under 
the following United States Letters Patent. 

"Various Patents covering Pneumatic Dredgers." 
(to be enumerated in detail). 

and such additional Patents as may come into his possession, upon 
the Terms, Conditions, etc., as hereinafter stated or provided for: — 

I. The License Agreement to cover the following 
Schedules of Enameled Ware 
Schedule i. 5 year Guaranteed Baths. 

u 2 2*' " '' 

" 3 All other Grades of Baths. 

" 4 Small Ware, Lavatories, etc. and 

R. R. sinks. 
" 5 Flat Rim Sinks 
" 6 Competitive Lavatories 552 to 562 

Inclusive 565 and 535. 

^ United States of America v. The Standard Sanitary Manufacturing Com- 
pany and others. In the Circuit Court of the United States for the District of 
Maryland, Gov't Exhibit No. 3, Record, Vol. II, pp. 4-6. It is necessary that 
some explanation should be given in regard to the bath tub combination. Both 
of the exhibits should first be read to make the situation clear as also the ex- 
cerpts from the opinion of Judge Rose against the combination (cf. Chap. XIII). 
On the face of the matter the combination appears to be a patent monopoly. 
The contention of the Government however was that the licensing scheme was 
purely a subterfuge, a device used for the purpose of creating the combination. 
This view is of course supported by the fact that none of the patents which were 
assigned to Wayman by three members of the subsequent combination were or 
are absolutely necessary in the manufacture of sanitary enameled iron ware. 
For this reason the combination has been assigned a place among the pools 
rather than among the patent monopoHes. — Ed. 



238 Industrial Combinations and Trusts 

2. The amount of Royalty to be as follows: 

$5.00 per day per furnace in operation vdih a rebate 
of 90 per cent, beginning with the ist month of 
the 2nd Period and monthly thereafter, if the 
terms of the License have been complied with. 

3. For each violation of the Price Regulations of the 

License Agreement w^e agree to forfeit a sum 
equal to the amount of the shipment in question, 
and such other penalties as may be agreed 
on. 

4. The Selling Prices to the Jobbers to be established 

through the Licensor by a Price Committee ap- 
pointed by the various manufacturers. 

5. The Resale Prices to the Jobber, taking into con- 

sideration the rebate for observance of Buying 
and Selling Regulations, shall be figured as fol- 
lows : 

High Grade Goods 25% above Jobbers cost. 
Competition Goods 16%% above Jobbers cost. 

6. The Rebates to Jobbers shall be as follows: 

10%, payable at end of Period for strict observance 
of agreements, the details of the manner in which 
the rebate shall be made, to be determined. 

7. The length of the Rebate Periods shall be 3 months 

beginning April 15th, 1910, with the exception 
of the first period, which shall end July ist. 

8. The License Agreement and Resale Prices shall be- 

come effective April ish,^ and the agreement to 
be executed between the Manufacturers and 
Jobbers shall contain a clause to the effect that 
all material purchased or on hand previous to the 
above date shall be sold at the Resale Prices that 
may be established. 

9. The details of Contract Forms between the Manu- 

facturers and the Licensor shall be drawn up by 
the Licensor and submitted for approval at the 
next Special Meeting to be held in New York 
City. 
10. The Licensor will also submit the same covering 
Agreement between Manufacturers and Jobbers. 

^ Thus in original. — Ed. 



Pools and Associations 



239 



II. The following "Preferential Discounts" from the 
selling Prices established by the Licensor will be 
allowed the various Manufacturers on Sales to 
Jobbers only. 

Schedule i — 5 year Guaranteed Baths 
u 2—2 " '' '' 

" 3— All other Grades of Baths 
" 4 — Small Ware — Lavatories, etc. & 
R. R. Sinks. 





tc 


5 — Sinks, fiat rim. 






IC 


6 — Competitive 


lavatories 552-562 In- 








elusive 


565 and 535 








SCHEDULES. 






Manufacturers 


I 


2 


3 


4 


<. 6 


Standard 


None 


None 


None 


None None None 


Wolff 


a 


cc 


a 




( cc 


U.S. 


(C 


cc 


cc 




c cc 


Kohler 


cc 


cc 


cc 




c cc 


Barnes 


tc 


cc 


cc 




I cc 


Cahill 


(C 


cc 


cc 




c cc 


Mott 


cc 


cc 


cc 




c cc 


Union 


5% 


2i% 


cc 


24% 


c cc 


Colwell 


5% 


2*% 


cc 


24% 


c cc 


Clymer 


5% 


2i% 


cc 


24% 


c cc 


Blairsville 


S% 


24% 


cc 


24% 


c cc 


McVay & Walker 


5% 


2i% 


cc 


24% 


c cc 


Weiskittel 


5% 


2i% 


cc 


24% 


c cc 


National 


5% 


2|% 


cc 


24% 


c cc 


Iron City 


5% 


24% 


cc 


24% 


c cc 


Humphryes 


5% 


24% 


cc 


24% 


c cc 


Day-Ward 


2i% 


24% 


cc 


24% 


c cc 


McCrum-Howell 


5% 


2i% 


cc 


24% 


c cc 


Wheeling 


5% 


24% 


cc 


24% 


c cc 



12. The length of time for which the License Agreement 
will be entered into and such other details as 
may be necessary for the perfection of the ar- 
rangement to be determined at the next meeting 
of the various Manufacturers. 

Signed 
(Here follow eleven signatures.) 



240 Industrial Combinations and Trusts 



EhXIBIT II 

bath tub combination 

LICENSE agreement ^ 

This Agreement, Made in duplicate this day of 

191 ... , between Edwin L. Wayman, a resident of the City of Pitts- 
burgh, State of Pennsylvania (hereinafter called the "Licensor"), 
party of the first part, and 

a corporation duly organized and existing under and by virtue of 

the laws of the State of (hereinafter called 

the "Licensee"), party of the second part. 

WITNESSETH: 

That Whereas, the said Wayman owns or controls or has the 
right to grant licenses under certain Letters Patent pertaining to 
the manufacture of Sanitary Enameled Iron Ware, enumerated 
in "Schedule of Patents," hereto annexed, and 

Whereas, The Licensee is desirous of acquiring a License under 
said Letters Patent of the character and upon the terms and condi- 
tions herein set forth; 

Now, Therefore, for and in consideration of the covenants 
of this agreement, the parties hereto agree as follows: — 

I. The Licensor hereby grants to the Licensee, subject to the pro- 
visions hereinafter contained, a non-exclusive License to practice 
in the manufacture of Sanitary Enameled Iron Ware, the processes 
patented in said several Patents, to make and use in such manufac- 
ture the machines and devices patented in said Patents and to use 
and sell goods so made; the said License being non-assignable and 
non-transferable except to successors to substantially the entire 
good-will and business of the Licensee, and this License shall be 
available for the Licensee and its successors only so long as it or 
they have not, prior to the date hereof, been engaged in the manu- 
facture of Sanitary Enameled Iron Ware. 

CLAIMS. 2. The Licensor hereby agrees to suspend 

his claims against the Licensee and its cus- 
tomers or patrons for damages or profits which 
he may be entitled to receive for any claims 
for any past infringement of said Letters Pat- 
1 Op. cit. U. S. V. S. S. MJ'g Co. Record, Vol. II, pp. 20-26. 



Pools and Associations 241 

ent by said Licensee, as long as said Licensee 
continues to perform all of its obligations under 
this contract. 

3. So long as the Licensee operates under 
this License or any renewal thereof and keeps 
and performs all of the obligations of said Li- 
cense herein contained, the Licensor agrees not 
to bring action against said Licensee because of 
its use of any machines, method or processes 
now or heretofore used by said Licensee in the 
manufacture of enameled ware, and to waive 
any and all claims under any letters patent on 
any machines, devices, or processes now in use 
by said Licensee, and to grant to said Licensee 
full use and enjoyment thereof. 
ROYALTIES. 4. For the use of the various patents enumer- 
ated in "Schedule of Patents," hereto annexed, 
the Licensee shall pay on the fifth day of each 
month a royalty amounting to Five ($5.00) 
Dollars per day for each furnace in operation 
during the preceding month. 
, This payment shall be made to the Licensor 
at his place of business in Pittsburgh, Pa., by 
cash or other acceptable remittance, and in 
determining the amount of this royalty each 
and every one of the furnaces owned by the Li- 
censee shall be considered as in operation each 
day, unless the said furnace or furnaces shall be 
shut down for more than a period of six (6) con- 
secutive working days. In case any of the fur- 
naces are thus shut down for more than six (6) 
consecutive working days, the Licensee shall be 
entitled to a diminution of his License payment 
at the rate of Five ($5.00) Dollars per working 
day for the number of days shut down. 

In order to determine the amount of actual 
license payment, together with the remittance 
hereinbefore provided for payment of royalty, 
the Licensee shall send to the Licensor a sworn 
statement, which will be duly verified under 
oath by some representative of the Licensee, 



242 Industrial Combinations and Trusts 

designated by the Licensor showing the number 
of furnaces owned by the Licensee at the begin- 
ning of the month which the report is intended 
to cover and the number of days which such 
furnaces have been operating consistent with 
the provisions of the foregoing Section of this 
License. 
PREFERENTIAL 5. This agreement is entered into with the 
DISCOUNTS, understanding that the Licensee has the priv- 
ilege of quoting to jobbers only the following 
additional discounts from the regular seUing 
prices to the Jobbers as estabhshed by the Li- 
censor. These additional discounts when given 
shall appear on the invoices rendered to the 
Jobber. 



PRICES. 6. The Licensor agrees that he will employ a 

commission of six (6) persons, of which he is tc 
be one and to act as Chairman thereof, five of 
whom shall be designated by a majority of the 
parties holding Licenses similar to this License, 
which Commission shall have supervision of all 
the relations and transactions between the par- 
ties hereto under this agreement, but it is under- 
stood that where a member of said Commission, 
or his Company, shall be directly interested in 
any question of a violation of the License to be 
decided by the said Commission, said member 
shall be disqualified and a temporary member 
shall be appointed in his place by the remaining 
members of the Commission. 

All terms and conditions relative to prices 
and discounts now established by the Licensor 
and set forth in the annexed schedules and 
made a part hereof, shall remain in force and 
effect until other terms, conditions and pref- 
erential discounts are substituted therefor by 
the Licensor, which substitution can only be 
made by him with the approval of a majority of 



Pools and Associations 



243 



the members of the Commission, hereinbefore 
prGscribed. Notice of such changes and substi- 
tutions shall be given from time to time in 
writing by the Licensor to the Licensees. The 
Licensee covenants to adhere to and maintain 
such terms, conditions, regulations and pref- 
erential discounts as may be established by the 
Licensor from time to time, and the Licensee 
further agrees to sell no "Seconds" or "Bs" 
covered by Schedules 4, 4-J^, 5 and 6. 
ROYALTY 7. If at the end of the fourth month of the 

REBATES. first year (said year beginning June ist, 1910) 
it shall appear that the Licensee has during the 
first month complied with all the terms of this 
agreement, the Licensor shall return the Li- 
censee the following rebate from the royalties 
paid for said License for said first month's 
royalties, to wit: 80% of the amount originally 
paid by the Licensee. 

8. At the termination of each succeeding 
month of the said License if it shall appear that 
the Licensee has fully complied with the terms 
of this agreement during the second preceding 
month, the Licensor shall make a similar rebate 
in respect to the royalties paid by the Licensee 
during the second preceding month. 

9. In case of failure on the part of the Li- 
censee to comply in any particular with the 
terms of this agreement during any month, the 
Licensor may withhold any and all unpaid 
rebates and declare the same forfeited as penalty 
for such violation and shall at once notify the 
Licensee to that effect. 



LABELS. 13. No goods manufactured under this Li- 

cense shall be sold unless they bear a registered 
label (except where otherwise specified) owned 
by the Licensee and in addition thereto a Li- 
cense tag or label approved by the Licensor, 



244 Industrial Combinations and Trusts 

which License tag or label shall be placed in a 
visible position on all goods made hereunder and 
sold by the Licensee. 

14. This agreement is binding upon the par- 
ties hereto, and the successor and assigns of each 
of them, and shall continue in force for a period 
of two years from the date hereof, unless pre- 
viously terminated as herein provided. 

15. This agreement, however, may be can- 
celled by the Licensor by written notice upon 
repeated breaches by the Licensee of any of the 
covenants herein contained. 

In Witness Whereof, the parties hereto 
have executed these presents the day and year 
above written. 



SCHEDULE OE PATENTS. 

Pat. No Date Inventor Title 

633,941 Sept. 26, 1899 James Arrott Dredger for pul- 

verulent mate- 
rial 
949,625 Feb. 15, 1910 E. Ditheridge Pneumatic Sieve 

939,918 Nov. 9, 1909 William Lindsay Enameling Pow- 

der Distributor. 

Exhibit 12 

memorandum of agreement (called the eastward agreement) 

regarding the trade between the atlantic ports of the 

u. s. a. and eastern asiatic ports ^ 

eastward agreement 

United States of America to the Straits, Manila, China, and Japan, 

For the better regulation of the trade between the Atlantic Ports 
of the United States of America and Eastern Asiatic Ports, it is 
hereby agreed as follows: — 

I. That on the basis of forty-one sailings per annum the total 
shall be divided as follows: 

1 United States of America v. American-Asiatic Steamship Company. Peti- 
tion, In equity in the District Court of the United States for the Southern Dis- 
trict of New York, Exhibit i, pp. 27-30. 



Pools and Associations 245 

United States and China- Japan Line. 13 sailings 

Messrs. Barber & Co.'s Line. 13 sailings 

The American and Oriental Line. - 8 sailings 

The American-Asiatic S. S, Co. 7 sailings. 

41 sailings 

No other sailings can be admitted without the consent of two- 
thirds of the signatories based on their respective number of sailings. 

The saiUngs allotted to each of the signatories shall be distrib- 
uted as nearly as possible at regular intervals throughout the twelve 
months, and the order of taking the berth shall be mutually ar- 
ranged by the agents in New York. 

2. That the fundamental condition of this agreement is to be 
close co-operation, and in order to secure this result the rates of 
freight from America to the East shall be controlled and mutually 
determined by the agents in New York, who before naming or 
altering a rate on any commodity shall first confer and agree 
amongst themselves as to the rate to be named and/or 1 the reduc- 
tion to be made. 

All engagements shall be reported to one another by the Agents 
in Conference the first business day of each week, and copies of 
freight lists are to be exchanged not less than three weeks after the 
departure of the steamer. 

3. That all contracts shall be taken for joint account, and where 
such contracts cannot be divided such shortages shall be made good 
to the parties in arrear out of the other contracts previously or sub- 
sequently secured, it being the purpose to equitably divide all book- 
ings. Each line shall, however, be entitled to book cargo specifically 
for their next steamer to be despatched, provided ready to load 
within 30 days. No line to book cargo specifically for a steamer until 
allowed to do so by a two-thirds majority vote of the New York agents, 
based on their principals' respective number of allotted sailings. 

4. That engagements of Petroleum in cases. Phosphate Rock and 
Coal are not necessarily joint operations, but competition for such 
articles is to be avoided and the closest possible co-operation is to be 
aimed at. Bookings of Petroleum in cases. Phosphate Rock and 
Coal are to be reported as soon as fixed. 

5. That shipments of the Quartermaster's Department, the Na\y 
(excluding Coal), and the Insular Department, and/or any other 
Government Department, shall be taken for joint account and 

1 Thus in original. — Ed. 



246 Industrial Combinations and Trusts 

pooled on a basis to be agreed between the respective Agents ^n 
such a way that all may obtain their proper proportion of the ben- 
efits arising from such contracts. Shipments of Specie and Explo- 
sives shall be dealt with in like manner. 

6. That no return of any description be given to Shippers, Con- 
tractors, etc., and where Freight Brokerages are paid the amount 
shall not exceed one and one-quarter per cent., unless where mu- 
tually agreed by all Agents to the contrary. 

7. That in order to avoid unnecessary expense and possible delay, 
the respective parties shall nominate one of the firms of Agents in 
New York to act for the time being as the mouthpiece of the Asso- 
ciated Agents; and also shall appoint one of their own number to 
act in a similar capacity on this side. All cabled enquiries regard- 
ing matters of policy, important contracts, etc., shall be communi- 
cated to the respective parties through this channel, and their repHes 
forwarded in the same way; but it is understood that this arrange- 
ment in no way interferes with the right of each signatory to commu- 
nicate ^ith his own Agents whenever and however he thinks fit. 

8. That in all matters of detail not herein decided the settlement 
shall be left in the hands of the Agents in New York, who shall as 
far as possible be given a free hand in the conduct of their business. 

9. That where it is considered advisable to book cargo for ac- 
count of the Associated Lines, which through lack of accommoda- 
tion on the regular steamers might other-^ise fall into the hands of 
competitors, such cargo shall be taken care of by chartering addi- 
tional tonnage, the result to be divided in proper proportion between 
the various interests, and the loading commission credited to the 
Agents pro rata to the share in the trade which each of the signa- 
tories hold, based on their respective number of sailings. 

All questions connected with the bookings of such additional 
cargo and the chartering of tonnage shall be governed by a two- 
thirds majority vote of the New York Agents, based on their prin- 
cipals' respective number of allotted sailings. Each service to 
charter and load such extra tonnage in turn. 

10. That the whole purpose of this Agreement is an equitable and 
fair division of the traffic between the services, to work openly and 
fairly ^vith one another, and to avoid any and all steps by which 
even the appearance of undue advantage is given. Should therefore 
conditions and questions arise which are not herein pro^^ded for, 
the purport and not the strict wording of this Agreement is to be 
considered. 



Pools and Associations 247 

11. That no steamer of a greater carrying capacity than 8,000 
tons all told is to be loaded under this Agreement, except by the 
unanimous consent of the Agents. 

12. That should any disputes arise under this Agreement they 
are to be left to the decision of the signatories to this Agreement, 
whose voting power shall be pro rata to their share in the business. 

Should any decision so arrived at be objected to by any party 
or parties hereto, the matter shall be referred to the decision of two 
Arbitrators, who shall be commercial men in London, New York, 
or Hong Kong, whichever place in the opinion of the majority of 
the signatories, as above, is best suited for the purpose, one to be 
appointed by the party or parties claiming or objecting as the case 
may be, and the other by the party or parties against whom the 
claim or objection is made; or in the case of a question as to the 
validity of a settlement by those parties who are content with the 
settlement as presented; with power to such nominated Arbitrators 
to appoint an Umpire whose decision shall be final and conclusive 
between all the parties to this Agreement, and for the purposes of 
any such reference this Agreement shall be deemed to be a submis- 
sion to Arbitration within the meaning of the Arbitration Act, 
1899, or any statutory modification or re-enactment thereof for the 
time being in force, the provisions whereof shall apply as far as 
applicable. 

13. That this Agreement is to commence with steamers saiUng 
from their first loading port in the U. S. A., on or after April ist, 
1905, and to remain in force until cancelled by any of the parties 
thereto giving six months' written notice of their desire to with- 
draw, such notice not to be given previous to ist day of July, 1906. 

By authority of Barber & Co. Incd., Walter Chambers. 
William Adamson & Co., on behalf of Shewan Tomes & Co 
Per Pro. T. B. Royden, and by written authority of the Ham- 
burg America Line and the Union S. S. Co. of Hamburg 
P. L. Roofer. 

For The American & Oriental Line, Howard 
Holder & Partners, Ltd., Alex. Freeland, Director, 
General Managers 
Witness to the Signatures of 

Wm. Adamson & Co., P. L. Roofer, and Alex. Freeland, 

Archd. Maclean. 
Anglo American Oil Co. Ltd., 
22, Billiter Street, London, E. C. 



CHAPTER X 
THE PATENT MONOPOLY 

NOTE 

For several years past the United Shoe Machinery Company has 
been regarded, and with reason, as the foremost example of a Patent 
Monopoly. This concern is, moreover, a combination, since prior 
to 1897 much of the machinery now controlled by the single com- 
pany was divided among four concerns and was therefore, subject 
to at least limited competition. In February 1897 the United 
Shoe Machinery Company was organized under the laws of the 
State of New Jersey. By means of an issue and exchange of its 
capital stock it took over the business of four concerns — the Con- 
solidated and McKay Lasting Machine Company, Goodyear Shoe 
Machinery Company, McKay Shoe Machinery Company and 
Eppler Welt Machine Company. Since that time the United Shoe 
Machinery Company has substantially controlled the shoe ma- 
chinery business of the United States which has been handled 
strictly upon a lease basis. Powerful as the company has been it 
has been constantly threatened by the invention of new types of 
shoe machinery. Frequently it has been compelled to buy out such 
potential competitors, often at high valuations. The license or 
lease system of the United Shoe Machiner}^ Company is shown 
below in the exhibits by a typical lease contract. There has also 
been included another typical lease or license agreement, that of 
the Motion Picture Patents Company and one of the Crown Cork 
and Seal Company. 

The last exhibit in this chapter consists of excerpts from the 
decision handed down in March 191 2 in the so-called Dick case. 
Influential as was the decision in the Dr. Miles Medical Company 
case, in restricting the tendency toward monopolistic control so 
far as the conditions and terms of sale have reference to unpatented 
articles, the Dick case goes the full length in the opposite direction 
and upholds in the most sweeping language the power of concerns 
and individuals holding patents to impose whatsoever conditions 

248 



The Patent Monopoly 249 

they may deem fit upon the use of articles covered by such patents 
or applications. The dissenting opinion rendered by Mr. Chief 
Justice White and concurred in by Mr. Justice Hughes and Mr. 
Justice Lamar condemns in no uncertain terms the doctrine thus 
laid down, chiefly on grounds of general public policy. This deci- 
sion was not rendered by a full bench, Mr. Justice Day taking no 
part in the decision, while the vacancy caused by the death of 
Mr. Justice Harlan remained still unfilled. Hence as being a four 
to three decision it was really a minority decision. Petitions for a 
rehearing have been filed and there is a chance that these may be 
granted. Unfortunate as the decision appears it may nevertheless 
have in it the germs of much good. This arises through the fact 
that one of the most needed things at the present time to check the 
tendency toward monopoly is a radical reform of the Patent Laws. 
The first step in this direction was taken by President Taft on 
May 10, 191 2 in sending to Congress a message asking for legisla- 
tion to authorize him to appoint a commission to investigate the 
Patent laws and report changes necessary — Ed. 

Exhibit i 

lease and license agreement of the united shoe machinery 
company for certain machines ^ 

Goodyear Department. [Form M. G. J., 6-806.] 

Lease and License Agreement Number . 



SEWING and stitching MACHINES. . 

This greement made at Boston, in the State of Massachusetts, 

this day of , 19 — , between the United Shoe Machinery 

Company, a corporation organized under the laws of the State of 
Maine, having an ofiice in said Boston, hereinafter referred to as 
the lessor of the one part, and — , of , in the State of , here- 
inafter referred to as the lessee, of the other part: 

Witnesseth that the lessor, in consideration of the covenants 
and agreements on the part of the lessee herein contained, does 

^ United States of America v. United Shoe Machinery Company and others. 
Petition, In the Circuit Court of the United States for the District of Massa- 
chusetts, Exhibit 5, pp. 1 13-120. 



250 Industrial Combinations and Trusts 

hereby lease to and license the lessee under any letters patent be- 
longing to the lessor or under which the lessor has the right to 
grant such Ucense affecting any inventions which are now or here- 
after shall be embodied therein or employed in the operation thereof, 
to use the machine or machines of the "Goodyear Department" 
of the lessor designated by number or numbers in the following 
schedule, viz: 

SCHEDULE OE MACHINES. 

Goodyear Welt and Turn Shoe Machine, No. 
Goodyear Universal Inseam Sewing Machine, No. 
Goodyear Outsole Rapid Lockstitch Machine, No. 
Extension Edge Attachment (A), No. 
Extension Edge Attachment (B), No. 
Welt Bevelling Attachment, No. 

and any duplicate parts, extras, mechanisms, and devices relating 
thereto, or used in connection therewith, now attached to or deliv- 
ered with the said designated machine or machines, or which may 
at any time hereafter be obtained from the lessor or be added 
thereto, by or with the consent of the lessor (the whole of which 
machine or machines, dupHcate parts, extras, mechanisms, and 
devices held by the lessee under these presents, w^hether now or 
hereafter delivered to or in the possession of the lessee, is herein- 
after referred to as the "leased machinery"), subject to the condi- 
tions hereinafter contained; and the lessor hereby grants to the 
lessee a license to use, in connection with welted boots, shoes, or 
other footwTar made by the lessee, the welts of w^hich have been 
sewed to their uppers wholly by Goodyear Welt and Turn Shoe 
Machines or by Goodyear Universal Inseam Sewing Machines, 
hereby leased or now held by the lessee under lease from the lessor 
heretofore executed, and the outsoles of which have been stitched 
to their welts w^hoUy by Goodyear Outsole Rapid Lock-Stitch Ma- 
chines, hereby leased or now held by the lessee under lease from the 
lessor heretofore executed, the trade name or trade-mark "Good- 
year Welt," and to use, in connection with turned boots, shoes, or 
other footw^ear made by the lessee the soles of which have been 
attached to their uppers wholly by the use of Goodyear Welt and 
Turn Shoe Machines or Goodyear Universal Inseam Sewdng Ma- 
chines, hereby leased or now held by the lessee under lease from the 
lessor heretofore executed, the trade name or trade-mark "Good- 
year Turn." 



The Patent Monopoly 251 

And that the following are agreed to as conditions of this agree- 
ment, all of which the lessee convenants and agrees to keep and 
perform: 

1. The leased machinery shall at all times remain and be the sole 
and exclusive property of the lessor and the lessee shall have no 
right of property therein, but only the right to use the same upon 
the conditions herein contained. The leased machinery shall be 
used only by the lessee himself or by operatives in his direct employ, 

and only in the factory now occupied by him at , in the State 

of , unless the lessor shall, by an instrument in writing signed 

by its president, vice president, or treasurer, authorize the lessee to 
remove the leased machinery and to use the same elsewhere. The 
leased machinery shall not be transferred or delivered or sublet to 
any other person or corporation, and neither this agreement nor the 
lease nor the license hereby granted can be assigned by the lessee 
by his own act or by operation of law. If the lessee becomes insol- 
vent or bankrupt, or has a receiving order made against him, or 
makes or executes any bill of sale, deed of trust, or assignment for 
the benefit of his creditors, or if a sale, mortgage, lease, or unauthor- 
ized removal of the leased machinery or any part thereof be made or 
attempted, or if any distress or execution or attachment be levied 
thereon, then and in each such case any or all leases of or licenses 
to use machinery then existing between the lessor and the lessee, 
whether as the result of assignment to the lessor or otherwise, 
shall, at the option of the lessor, cease and determine, and the pos- 
session of and full right to and control of all machinery the leases 
or licenses of which are so terminated shall thereupon revest in the 
lessor free from all claims and demands whatsoever. The lessor 
and its agents and employees shall at all times be given access to 
the leased machinery for the purpose of inspecting it or watching 
its use and operation, or of altering, repairing, improving, or adding 
to it, or determining the nature or extent of its use, and the lessee 
shall afford all reasonable facilities therefor. 

2. The lessee shall at all times and at his own expense keep the 
leased machinery in good and efficient working order and condition 
and shall not permit anyone to injure or deface or remove any 
plate or dates, numbers, or other inscriptions now or hereafter 
impressed on or affixed to the leased machinery by the lessor. The 
lessee shall obtain from the lessor exclusively, and shall pay there- 
for at the regular prices from time to time established by the lessor, 
all the duplicate parts, extras, mechanisms, and devices of every 



252 Industrial Combinations and Trusts 

kind needed or used in operating, repairing, or renewing the leased 
machinery, and the same shall form part of the leased machinery, 
and the lessee shall not otherwise make or allow to be made any 
addition, subtraction, or alteration to, from, or in the leased 
machinery nor interfere with the proper operation of the 
same. 

3. The leased machinery shall at all times, until the expiration 
or termination of the lease thereof and license to use the same hereby 
granted and the redelivery of the leased machinery into the posses- 
sion of the lessor as hereinafter provided, be held at the sole risk of 
the lessee from injury, loss, or destruction, and in case any welting 
or stitching or sewing machine or machines hereby leased shall be 
lost or destroyed by fire or othermse before such expiration or ter- 
mination and redelivery, the lessee shall pay to the lessor in respect 
to each such machine so lost or destroyed the sum of two hundred 
and twenty-five (225) dollars as partial reimbursement to the lessor 
for such loss or destruction, and the lessee shall forthwith return 
whatever remains of all the machinery so lost or destroyed to the 
lessor at Beverly, Massachusetts. 

4. The lessee shall pay all taxes and assessments which shall be 
assessed in respect to the leased machinery or other machinery of 
the lessor held by the lessee under lease or Hcense upon whomsoever 
assessed. All taxes or assessments in respect to leases, licenses, or 
agreements covering machinery, or the rights to payments there- 
under, shall be construed, for the purposes of this article, to be 
assessed in respect to the machinery itself. In case at any time any 
unapportioned tax or assessment shall be assessed to the lessor in 
respect in part but not wholly to machinery of the lessor in the 
possession of the lessee the lessee shall pay to the lessor such pro- 
portionate part of the total amount of said unapportioned tax or 
assessment as the fair valuation, to be determined by the lessor, of 
said machinery of the lessor in the possession of the lessee bears to 
the fair valuation, to be determined by the lessor, of all machinery 
(excepting machinery, if any, in the lessor's own possession) in 
respect to which the unapportioned tax or assessment has been 
assessed: Provided, however, That if such unapportioned tax or 
assessment includes any tax or assessment in respect to tangible 
property in the lessor's own possession the amount thereof, based 
at the established rate upon the fair valuation, to be determined by 
the lessor of such property, shall first be deducted and the lessee 
shall pay his proportionate part as aforesaid of the balance only of 



The Patent Monopoly 253 

said unapportioned tax or assessment after such deduction has been 
made. 

5. The leased machinery shall be used only in the manufacture 
of boots, shoes, and other footv/ear made by the lessee known in the 
trade as "Goodyear Welts," which have been or are to be welted 
wholly by Goodyear Welt and Turn Shoe Machines or Goodyear 
Universal Inseam Sewing Machines held by the lessee under lease 
from the lessor, and the soles of which have been or are to be at- 
tached to their welts wholly by Goodyear Outsole Rapid Lock-Stitch 
Machines held by the lessee under lease from the lessor, or in the 
manufacture of boots, shoes, or other footwear made by the lessee 
known in the trade as "Goodyear Turns," the soles of which have 
been or are to be attached to their uppers wholly by Goodyear Welt 
and Turn Shoe Machines or Goodyear Universal Inseam Sewing 
Machines held by the lessee under lease from the lessor. The lessee 
shall not represent or sell as "Goodyear Welts" any boots, shoes, 
or other footwear which are not welted wholly by the use of Good- 
year Welt and Turn Shoe Machines or Goodyear Universal Inseam 
Sewing Machines held under lease from the lessor, or the soles of 
which are not attached to their welts wholly by the use of Goodyear 
outsole rapid lock-stitch machines held under lease from the lessor 
or as "Goodyear Turns" any boots, shoes, or other footwear the 
soles of which are not attached to their uppers wholly by the use of 
Goodyear Welt and Turn Shoe Machines or Goodyear Universal 
Inseam Sewing Machines held under lease from the lessor. The 
lessee shall use the leased machinery to its full capacity in the manu- 
facture of "Goodyear Welts" and "Goodyear Turns," limited 
only by the number of welted and turned boots, shoes, and other 
foorwear made by or for him. 

6. The lessee shall pay to the lessor throughout the full term of 
this agreement the respective amounts set forth in the following 
schedule in respect to each pair of welted boots, shoes, or other 
footwear, or portions thereof, manufactured or prepared by or for 
the lessee, which shall have been welted in whole or in part or the 
soles of which shall have been in whole or in part attached to welts 
by the use of any welting or stitching or sewing machinery, and in 
respect to each pair of "turned" boots, shoes, or other footwear, 
or portions thereof, manufactured or prepared by or for the lessee, 
the soles of which shall have been sewed or attached to their uppers 
in whole or in part by the use of any sewing or stitching machinery, 
viz: 



254 



Industeial Combinations and Trusts 





Schedule 


of payments per pair. 






Sizes. 


Welts. 


Turns. 




Form No.— To No.— 




Children's 

Misses' 


I !io3^, inclusive 

II 12. " 


3 cents . . 

4 cents . . 
6 cents . . 
4 cents . . 
6 cents. . 
8 cents. . 


I cent. 
i>2 cents. 
i>^ cents. 
x}4 cents. 
i}4 cents. 
iK cents. 


Women's 


9 


and over 


Youths' 


135^, inclusive 

s. " 

and over 


Bovs' . . 


Men's 







Such payments shall be made on the last day of each calendar 
month in respect to all such boots, shoes, and other footwear manu- 
factured or prepared by or for the lessee during the next preceding 
calendar month : Promded, however, That in all cases vv^hen the lessee 
shall pay to the lessor on or before the fifteenth day of the calendar 
month the amount due pursuant to the schedule in this article 
hereof contained for the next preceding calendar month, the lessor 
will, in consideration of such prompt payment, grant a discount of 
fifty per cent from the amount so due for such preceding calendar 
month. The lessee, however, guarantees that the payments made 
in accordance with the foregoing schedule of payments under this 
agreement in respect to boots, shoes, or other footwear operated 
upon by the welting, stitching, or sewing machines hereby leased 
(after deducting all abatements) shall amount in each calendar 
year to at least fifteen dollars (Si 5) for each calendar month for 
each welting or stitching or seeing machine hereby leased, and at 
the end of each calendar year the lessee shall pay to the lessor the 
amount, if any, by which the total of such pajmients for said year 
is less than such guaranteed amount. All payments and the guar- 
antee in this agreement pro\dded for are independent of and in 
addition to all pa}Tnents and guarantees pro\-ided for in any other 
leases or Kcenses or agreements between the lessor and the lessee: 
Provided, however. That (excepting in so far as is required by the 
guarantees herein contained or contained in other lease and license 
agreements between the lessor and the lessee), in case under any 



The Patent Monopoly 255 

other " Goodyear Department" lease and license agreement between 
the lessor and the lessee covering one or more Goodyear Welt and 
Turn Shoe Machines, Goodyear Universal Inseam Sewing-Ma- 
chines, or Goodyear Outsole Rapid Lock-Stitch Machines, the 
lessee shall have paid to the lessor the amount set forth in the 
schedule of payments in such lease and license agreement contained 
in respect to any pair of boots, shoes, or other footwear, then the 
lessee shall be relieved from said payment hereunder in respect to 
that pair of boots, shoes, or other footwear. 

7. The lessor may attach to the leased machinery, or any thereof, 
an indicator or indicators to register the number of revolutions or 
movements of any part or parts thereof, and the lessee shall not 
allow any person (other than the lessor or its agents) to disturb or 
interfere with such indicator or indicators. In case any indicator 
thus attached shall from any cause cease to correctly indicate or 
register, or shall be disturbed or out of repair, or if the glass cover- 
ing any such indicator shall be removed or broken or injured, then, 
and as often as the same shall happen, the lessee shall immediately, 
by writing, notify the lessor and at the same time explain the cir- 
cumstances under which the same has happened. In case any such 
indicator ceases to indicate or becomes or remains inaccurate, or the 
glass covering becomes or remains removed, broken, or injured, 
because 01 any fault of the lessee or anyone in his employ, or because 
of the failure of the lessee to give promptly the notice hereinbefore 
provided for, then, without prejudice to any other rights or reme- 
dies of the lessor, the lessee shall pay the lessor, without the right to 
any discount, eight cents per pair for each pair of boots, shoes, or 
other footwear or portions thereof in the manufacture of which the 
leased machinery or any part thereof shall have been used. The 
lessee shall keep full and accurate accounts, independently of any 
indicators that may be placed upon the leased machinery, showing 
the number and kind of boots, shoes, and other footwear or portions 
thereof manufactured or prepared by or for the lessee which have 
been welted in whole or in part or the soles of which have been in 
whole or in part attached to welts by the use of welting or stitching 
or sewing machinery, and of turned boots, shoes, or other footwear 
or portions thereof manufactured or prepared by or for the lessee 
the soles of which have been sewed or attached to their uppers in 
whole or in part by the use of sewing or stitching machinery, and 
shall allow the lessor at all times, by its agents or attorneys, to 
examine and to take copies of such accounts and entries of the lessee 



256 Industrial Combinations and Trusts 

as may serve to determine the total number of such boots, shoes, 
or other footwear or portions thereof; and the lessee shall produce 
all such accounts and entries upon request. The lessee shall require 
each of his operators upon the leased machinery or any part thereof 
to keep, upon blanks or blank books to be furnished by the lessor, 
accurate daily records of the number and kind of boots, shoes, and 
other footwear or portions thereof in the manufacture or prepara- 
tion of which he has used the leased machinery or any part thereof, 
and shall require his operators to sign such records, and, if requested 
so to do by the lessor, shall verify the same under oath. The lessee 
shall send to the office of the lessor in Boston, on or before the fifth 
day of each calendar month, the original records for the next pre- 
ceding calendar month kept by his operators as above provided for, 
and in case, in any calendar month, any one or m.ore of the machines 
hereby leased has been entirely idle, the lessee, on or before the fifth 
day of the next succeeding calendar month, shall send to the office 
of the lessor in Boston the blank for said month for each such idle 
machine marked "not in use" and signed by the lessee. The lessee 
shall also furnish any further information w^hich may be called for 
in relation to the leased machinery or the use thereof. 

And that the following stipulations and provisions are agreed to : 

8. If at any time the lessee shall fail or cease to use exclusively 
welt-sewing and outsole stitching machinery held by him under 
lease from the lessor in the manufacture of all welted boots, shoes, 
or other footwear made by or for him, the welts or soles of which 
are sewed, stitched, or attached by the aid of machinery, or shall 
fail or cease to use exclusively turn-sewing machinery held by him 
under lease from the lessor in the manufacture of all turned boots, 
shoes, or other footwear made by or for him, the soles of which are 
sewed or attached by the aid of machinery, the lessor, although it 
may have waived or ignored prior instances of such failure or cessa- 
tion, may at its option terminate forthwith by notice in writing 
any or all leases of or licenses to use machinery then existing 
between the lessor and the lessee, Vv^hether as the result of assign- 
ment to the lessor or other^dse, and the possession of and full right 
to and control of all machinery the lease or license of which is so 
terminated, shall thereupon revest in the lessor free from all claims 
and demands whatsoever. 

9. The term of this agreement shall be seventeen years from the 
date hereof. The lease of the leased machinery and license to use 
the same hereby granted shall continue, unless sooner terminated 



The Patent Monopoly 257 

by the lessor, as in this agreement provided, for the full term of this 
agreement, but, if any breach or default shall be made in the observ- 
ance of any one or more of the conditions in this agreement con- 
tained or contained in any other lease or license agreement sub- 
sisting between the lessor and the lessee, whether as the result of 
assignment to the lessor or otherwise and expressed to be obligatory 
upon the lessee, the lessor shall have the right, by notice in writing 
to the lessee, to terminate forthwith any or all leases of or licenses 
to use machinery then in force between the lessor and the lessee, 
whether as the result of assignment to the lessor or otherwise, and 
this notwithstanding that previous breaches or defaults may have 
been unnoticed, waived, or condoned by or on behalf of the lessor. 
If, upon the expiration of the full term of this agreement, the lessor 
does not request the return of the leased machinery, then the leased 
machinery shall continue to be held and used under and in accord- 
ance with the conditions, stipulations, and provisions in this agree- 
ment contained, and this agreement and the lease and license herein 
contained shall thereupon be extended indefinitely as to term; but 
thereafter either the lessee or the lessor, upon sixty days' notice in 
writing to the other, may terminate this agreement and the lease 
and Hcense herein contained, whereupon the leased machinery 
shall be delivered forthwith to the lessor, as hereinafter provided. 
Upon the expiration of this agreement or any extension thereof or 
the termination of the lease and license herein contained, the lessee 
shall forthwith deliver the leased machinery to the lessor at Beverly, 
Massachusetts, in good order, reasonable wear and tear alone 
excepted, and shall thereupon pay to the lessor without prejudice 
to any other rights or remedies of the lessor such sum as may be 
necessary to put the leased machinery in suitable order and condi- 
tion to lease to another lessee. The lessee for himself, his heirs, 
executors, and administrators, successors, and assigns, hereby 
grants to the lessor, its successors and assigns, full right, power, 
and authority upon such expiration or termination and without 
prejudice to any other rights or remedies of the lessor to enter upon 
the premises and into any factory, room, or any place where the 
leased machinery, or any part thereof, may be, and take possession 
thereof, and take away the same; and in no case shall the lessee 
have any claim for the repayment or offset of any sum or sums, or 
any part thereof, which shall have been paid under this agreement 
or in respect to the lease or license herein contained, or in anywise 
in respect to the leased machinery. 



258 Industrial Combinations and Trusts 

10. Upon the expiration of this agreement, or any extension 
thereof, or the termination of the lease and license hereby granted, 
the lessee, in addition to all other payments in this agreement pro- 
vided for and without prejudice to any other rights or remedies of 
the lessor, shall pay to the lessor in respect to each welting or 
stitching or sewing machine hereby leased the sum of one 
hundred and fifty (150) dollars as partial reimbursement to 
the lessor for deterioration of the leased machinery, expenses 
in connection with the installation thereof, and instruction of 
operators. 

11. A notice in writing, signed by the president, a vice president, 
the treasurer or the assistant treasurer of the lessor or by any 
assignee of the lessor's rights hereunder, and posted by prepaid let- 
ter, addressed to the lessee or dehvered at his usual or last-known 
place of abode or business, that the lease and license hereby granted 
is terminated, or shall be terminated at the expiration of a certain 
period, shall be a sufficient termination of the lease and license from 
the time of posting or delivering such notice, or from the expiration 
of the period therein mentioned, as the case may be. Any termina- 
tion of the lease and license hereby granted shall be without prej- 
udice to any rights or remedies w^hich the lessor may have for 
violation of contract, use of machines without right, use of patented 
inventions without license or otherwise. 

12. The lessee admits the vahdity for the full term expressed in 
the grant thereof (and every extension and renewal thereof) of each 
and every of the Letters Patent of the United States of America 
owned by the lessor or under which it is licensed, any of the inven- 
tions of which are or hereafter may be embodied in the leased 
machinery, and the validity of and title of the lessor to the exclu- 
sive ownership of the trade names' or trade-marks " Goodyear Welt" 
and "Goodyear Turn" used in connection with boots, shoes, and 
other footwear. The lessee also agrees that he will not directly or 
indirectly infringe or contest the validity for the full term expressed 
in the grant thereof, or of any extension or renewal thereof, of any 
of the Letters Patent referred to in the "Schedule of Patents" 
hereto annexed or the title of the lessor thereto, and that he will 
not directly or indirectly infringe or contest the validity of or the 
title of the lessor to the said trade names or trade-marks " Goodyear 
Welt" or "Goodyear Turn." The expiration of this agreement or 
any extension thereof or the termination or cesser of the lease and 
license hereby granted shall not in any way affect the provisions of 



The Patent Monopoly 259 

this clause or release or discharge the lessee from the admissions 
and estoppels herein set forth. 

13. None of the conditions, stipulations, or provisions of this 
agreement shall be held to have been waived by any act or knowl- 
edge of the lessor, its agents or employees, but only by an instru- 
ment in writing, signed by the president, a vice president, or the 
treasurer of the lessor. 

14. The term "lessor" shall include the said United Shoe Ma- 
chinery Company and its successors and assigns. All the condi- 
tions, stipulations, and provisions binding on the lessee shall be 
binding on and enforceable against his legal representatives. In the 
construction of this instrument words relating to the number and 
gender of the parties shall be read according to their real number 
and gender. 

In witness whereof the parties hereto have duly executed this 
instrument in duplicate the day and year first above written. 



(If lessee is a corporation, add corporate seal.) 

[here follows schedule of patents.] 

Exhibit 2 
exchange license agreement of the motion picture patents 

COMPANY ^ 

Whereas the Motion Picture Patents Co. of New York City 
(hereinafter referred to as the "Licensor") is the owner of all the 
right, title, and interest in and to reissued Letters Patent No. 
1 2 19 2, dated January 12, 1902, granted to Thomas A. Edison, for 
kinetoscopic film, and also Letters Patent Nos. 578185, 580749, 
586953, 588916, 673329, 673992, 707934, 722382, 744251, 770937. 
771280, 785205, and 785237, for inventions relating to motion- 
picture projecting machines; and 

Whereas the Licensor has licensed the American Mutoscope & 
Biograph Co. of New York City, the Edison Manufacturing Co. of 
Orange, N. J.; the Essanay Co. of Chicago; the Kalem Co. of 
New York City; George Kleine of Chicago; Lubin Manufacturing 
Co. of Philadelphia; Pathe Freres of New York City; the Selig 

^Hearings before the Committee on Interstate Commerce, United States 
Senate, 62nd Cong., 2nd Sess. 1911-1912, Exhibit A. pp. 1338-41. 



26o Industrial Combinations and Trusts 

Polyscope Co. of Chicago; and the Vitagraph Co. of America, of 
New York City (hereinafter referred to as "Licensed Manufacturers 
or Importers"), to manufacture or import motion pictures under 
the said reissued letters patent and to lease licensed motion pictures 
(hereinafter referred to as "licensed motion pictures") for use on 
projecting machines licensed by the Licensor; and 

Whereas the undersigned (hereinafter referred to as the "Li- 
censee") desires to obtain a license under said reissued Letters 
Patent No. 12 192, to lease from the Licensed Manufacturers and 
Importers licensed motion pictures and to sublet the said Ucensed 
motion pictures for use on projecting machines Hcensed by the 
Licensor; 

Now, therefore, the parties hereto, in consideration of the cove- 
nants herein, have agreed as follows: 

(i) The Licensor hereby grants to the Licensee, for the term 
and subject to the conditions expressed in the "Conditions of 
Hcense" hereinafter set forth, the Hcense, under the said reissued 
Letters Patent No. 12 192, to lease licensed motion pictures from 
the Licensed Manufacturers and Importers and to sublease said 
licensed motion pictures for use only on projecting machines Hcensed 
by the Licensor under letters patent owned by it. 

(2) The Licensee covenants and agrees to conform with and 
strictly adhere to and be bound by all of the " Conditions of license " 
hereinafter set forth, and to and by any and all future changes in or 
additions thereto, and further agrees not to do or suffer any of 
the acts or things thereby prohibited, and that the Licensor may 
place and publish the Licensee's name in its removal or suspended 
list in the event of the termination of this agreement by the Li- 
censor, or in case of any violation thereof, and may direct the 
Licensed Manufacturers and Importers not to lease licensed motion 
pictures to the Licensee, the Licensee hereby expressly agreeing 
that such Licensed Manufacturers and Importers shall have the 
right to cease such leasing when so directed by the Licensor; and 
the Licensee further agrees that the signing of this agreement con- 
stitutes a cancellation of any or all agreements for the sale of 
licensed motion pictures made prior to this agreement by and be- 
tween the Licensee and any or all licensed manufacturers or im- 
porters, except as to any clause in said agreements relating to the 
return of motion-picture film to the several licensed manufacturers 
or importers. It is further understood and agreed by the Licensee 
that the hcense hereby granted is a personal one and not trans- 



The Patent Monopoly 261 

ferrable or assignable, and the Licensee hereby recognizes and ac- 
knowledges the vaHdity of the said reissued Letters Patent No. 
12192. 

CONDITIONS OF LICENSE. 

1. From the date of this agreement the Licensee shall not buy, 
lease, rent, or otherwise obtain any motion pictures other than 
licensed motion pictures and shall dispose of any motion pictures 
only by the subleasing thereof imder the conditions hereinafter 
set forth. 

2. The ownership of each Hcensed motion picture leased under 
this agreement shall remain in the Licensed Manufacturer or Im- 
porter from whom it may have been leased, the Licensee, by the 
payment of the leasing price acquiring only the Hcense to sublet 
such motion picture subject to the conditions of this agreement. 
Such Hcense for any motion picture shall terminate upon the 
breach of this agreement in regard thereto, and the Licensed Manu- 
facturer or Importer from whom it may have been leased shall 
have the right to immediate possession of such motion picture, 
without liabiHty for any leasing price or other sum, which the 
Licensee, or the person in whose possession said motion picture 
is found, may have paid therefor. 

3. The Licensee shall not sell nor exhibit licensed motion pictures 
obtained from any Licensed Manufacturer or Importer, either in 
the United States or elsewhere, but shall only sublet such Hcensed 
motion pictures [and only for use in the United States and its 
territories] 1 and only to exhibitors who shall exclusively exhibit 
licensed motion pictures, but in no case shaU the exhibitor be per- 
mitted to sell or sublet or otherwise dispose of said licensed motion 
pictures. 

4. The leasing price to be paid by the Licensee to the Licensed 
Manufacturers or Importers, or the terms of payment for or ship- 
ment of licensed motion pictures, shall in no case be less or more 
favorable to the Licensee than that defined in the leasing schedule 
embodied in this agreement or any other substitute leasing schedule 
which may be regularly adopted by the Licensor and of which 
notice shall be given to the Licensee hereafter. 

5. To permit the Licensee to take advantage of any standing 
order leasing price mentioned in such schedule, such standing order 

1 Words in brackets eliminated by Patents Co. by notice dated Sept 13, 191 1, 
effective Oct. i, 191 1. 



262 Industrial Combinations and Trusts 

with any Licensed Manufacturer or Importer shall be for one or 
more prints of each and every subject regularly produced and 
offered for lease by such manufacturer or importer as a standing 
order subject and not advertised as special by such Licensed 
Manufacturer or Importer, and shall remain in force for not less 
than 14 consecutive days. Any standing order may be canceled 
or reduced by the Licensee on 14 days' notice. Extra prints in 
addition to a standing order shall be furnished to the Licensee at 
the standing order leasing price. 

6. The Licensee shall not sell, rent, or otherwise dispose of, 
either directly or indirectly, any licensed motion pictures, however 
the same shall have been obtained, to any persons, firms, or corpora- 
tions or agents thereof who may be engaged either directly or in- 
directly in selling or renting motion-picture films. 

7. The Licensee shall not make or cause to be made or permit 
others to make reproductions or so-called "dupes" of any licensed 
motion pictures, nor sell, rent, loan, or otherwise dispose of or 
deal in any reproductions or "dupes" of any motion pictures. 

8. The Licensee shall not deliberately remove the trade-mark or 
trade name or title from any licensed motion picture, nor permit 
others to do so, but in case any title is made by the Licensee, the 
Manufacturer's name is to be placed thereon, provided that in 
making any title by the Licensee the Manufacturer's trade-mark 
shall not be reproduced. 

9. The Licensee shall return to each Licensed Manufacturer or 
Importer (without receiving any payment therefor, except that the 
said Licensed Manufacturer or Importer shall pay the transporta- 
tion charges incident to the return of the same) on the ist day of 
every month commencing seven months from the ist day of the 
month on which this agreement is executed an equivalent amount of 
positive motion-picture film in running feet (not purchased or leased 
over 12 months before) and of the make of the said Licensed Manu- 
facturer or Importer equal to the amount of licensed motion pic- 
tures that was so leased during the seventh month preceding the 
day of each such return, with the exception, however, that where 
any such motion pictures are destroyed or lost in transportation 
or otherwise and satisfactory proof is furnished, within 14 days 
after such destruction or loss, to the Licensed Manufacturer or Im- 
porter from whom such motion picture was leased the Licensed 
Manufacturer or Importer shall deduct the amount so destroyed or 
lost from the amount to be returned. 



The Patent Monopoly 263 

10. The Licensee shall not sell, rent, sublet, loan, or otherwise 
dispose of any hcensed motion pictures, however the same may 
have been obtained, to any person, firm, or corporation in the 
exhibition business who may have violated any of the terms or 
conditions imposed by the Licensor through any of its licensees 
and of which violation the present Licensee may have had notice. 

11. The Licensee shall not sublease licensed motion pictures to 
any exhibitor unless a contract with said exhibitor (satisfactory in 
form to the Licensor) is first exacted, under which the exhibitor 
agrees to conform to all the conditions and stipulations of the pres- 
ent agreement appHcable to the exhibitor; and in the case of an ex- 
hibitor who may operate more than a single place of exhibition, a 
similar contract shall be exacted in connection with each place so 
operated, and suppUed with licensed motion pictures by the Li- 
censee. 

12. After February i, 1909, the Licensee shall not sublease any 
licensed motion pictures to any exhibitor unless each motion- 
picture projecting machine on which the Hcensed motion pictures 
are to be used by such exhibitor is regularly licensed by the Motion 
Picture Patents Co., and the license fees therefor have been paid; 
and the Licensee shall, before supplying such exhibitor with licensed 
motion pictures, mail to the Motion Picture Patents Co., at its 
office in New York City, a notice, giving the name of the exhibitor, 
the name and location of the place of exhibition (and, if requested 
to do so by the Licensor, its seating capacity, hours of exhibition 
and price of admission, and the number and make of the licensed 
projecting machine or machines), together with the date of the 
commencement of the subleasing, all in a form approved by the 
Licensor. The Licensee, when properly notified by the Licensor 
that the license fees of any exhibitor for any projecting machine 
have not been paid, and that the license for such projecting machine 
is terminated, shall immediately cease to supply such exhibitor 
with licensed motion pictures. 

13. The Licensee agrees to order during each month while this 
agreement is in force, for shipment directly to the place of business 
of the Licensee in the city for which this agreement is signed, 
licensed motion pictures, the net leasing prices for which shall 
amount to at least $2,500. 

14. The Licensee shall, on each Monday during the continuance 
of this agreement, make or mail payment to each Licensed Manu- 
facturer and Importer for all invoices for licensed motion pictures 



264 Industrial Combinations and Trusts 

which have been received by the Licensee during the preceding 
week. 

15. This agreement shall extend only to the place of business for 
the subleasing of motion pictures maintained by the Licensee in 
the city for which this agreement is signed, and the Licensee agrees 
not to establish or maintain a place of business for the subleasing 
of motion pictures, or from which motion pictures are delivered to 
exhibitors, in any other city, unless an agreement for such other 
city, similar to the present agreement, is first entered into by and 
between the Licensee and the Licensor. 

16. This Licensor agrees that before Hcensing any person, firm, 
or corporation in the United States (not including its insular terri- 
torial possessions and Alaska) to lease licensed motion pictures 
from Licensed Manufacturers and importers and to sublease such 
motion pictures, it will exact from each such licensee an agreement 
similar in terms to the present agreement, in order that all licensees 
who may do business with the Licensed Manufacturers and Im- 
porters will be placed in a position of exact equality. 

19.1 It is imderstood and specifically covenanted by the Licensee 
that the Licensor may terminate this agreement on 14 days' written 
notice to the Licensee of its intention so to do, and that if the 
Licensee shall fail to faithfully keep and perform the foregoing 
terms and conditions of lease, or any of them, or shall fail to pay 
the leasing price for any motion pictures suppHed by any Licensed 
Manufacturer or Importer when due and payable according to 
the terms of this agreement, the Licensor shall have the right to 
place the Licensee's name on an appropriate suspended hst, which 
the Licensor may publish and distribute to its other licensees and to 
exhibitors and to the Licensed Manufacturers and Importers and 
to direct the Licensed Manufacturers and Importers not to lease 
license motion pictures to the Licensee, and the exercise of either 
or both of these rights by the Licensor shall not be construed as a 
termination of tliis license, and the Licensor shall also have the 
right in such case, upon appropriate notice to the Licensee, to 
immediately terminate the present license, if the Licensor shall so 
elect, without prejudice to the Licensor's right to sue for and 
recover any damages which may have been suffered by such breach 
or noncompliance with the terms and conditions hereof by the 
Licensee, such breach or noncompliance constituting an infringe- 
ment of said reissued letters patent. It is further agreed by the 
^ Thus in original. — Ed. 



The Patent Monopoly 265 

Licensee that if this agreement is terminated by the Licensor for 
any breach of any condition hereof, the right to possession of all 
licensed motion pictures shall revert, 20 days after notice of such 
termination, to the respective Licensed Manufacturers and Im- 
porters from whom they were obtained and shall be returned to 
such Licensed Manufacturers or Importers at once after the expira- 
tion of that period. 

20. It is understood that the terms and conditions of this license 
may be changed at the option of the Licensor upon 14 days' written 
notice to the Licensee; but no such change shall be effective and 
binding unless duly ratified by an officer of the Licensor. 
Leasing prices {per running foot) of licensed positive motion pictures. 

Cents. 

List II 

Standing order 13 

Films leased between 2 and 4 months after release date 9 

Films leased between 4 and 6 months after, release date 7 

Films leased over 6 months after release date 5 

A rebate of 10 per cent will be allowed on all leases of licensed 
motion pictures, except at the 7-cent and 5-cent prices, which are 
net; said rebates to be due and payable between the ist and 15th 
days of each of the months of March, May, July, September, 
November, and January on all films leased during the two months 
preceding each said period, provided all the terms and conditions 
of this license agreement have been faithfully observed. 

TERMS. 

All shipments are made f. o. b. lessor's office at lessee's risk. 
All motion-picture films are to be shipped to lessee's office only. 
The lengths at which motion-picture films are listed and leased 
are only approximate. 

Motion Picture Patents Co., 
By D. MacDonald, General Manager. 

(Licensee's signature.) , 

Greater New York Film Rental Co., 
, Secretary. 



Place of business for which this license is granted. No. 24 Union 
Square, New York, N. Y. 
January 20, 1909. 



266 Industrial Combinations and Trusts 

Exhibit 3 



Form of license and lease of automatic power Crown soda machine 
from the Crown Cork & Seal Co., of Baltimore city, lessor, 
to . 

The Crown Cork & Seal Co., of Baltimore city, hereby licenses 

and leases to , lessee, one automatic power Crown 

soda machine under United States Letters Patent Nos. 473776, 
April 26, 1892; 608158, July 26, 1895; 609209, August 16, 1898; 
658354, December 5, 1899; and also patent appHcations filed in 
the United States Patent Office, to be used only by said lessee 
at . 

The lessee agrees to pay therefor $1,200, f. o. b. Baltimore, 30 
days after date of shipment of invoice, $6 per month for the whole 
term of the lease, the first payment to be made on the last day of the 
month succeeding shipment, and on the last day of each succeeding 
month thereafter. 

The lease and license are granted for the full term for which 
said patent was originally granted, to wit, for 17 years from date, 
and shall continue during that term, without reference to any de- 
cision as to the validity of any said patents. 

The license and lease are granted upon the following conditions: 
The said machine shall be used only in connection with crown 
corks purchased by the lessee directly from lessor; crowns not fit 
for ser\dce may be returned at the Crown Cork & Seal Co.'s ex- 
pense before use and within 30 days from date of invoice. The 
lessor shall be sole judge of the origin or manufacture of crowns 
returned; the lessor shall not be liable for any consequential dam- 
ages or for any abatement in the rent or any loss other than such 
return of crowns on account of alleged defects in crowds. The ma- 
chine shall be kept in repair by the lessee at its ow^n expense, but 
the repair parts shall be purchased from the lessor at its regular 
catalogue prices. 

The Crow^n Cork & Seal Co. shall at all times have access to the 

1 Hearings before the Committee on the Judiciary on Trust and Patent 
Legislation, House Reports — Nos. 11380-11381, 15926, 19959. 62nd Congress, 
2nd Session, 1911-1912. Trust Legislation Serial No. 2, Patent Legislation 
Serial No. i, p. 164. 



The Patent Monopoly 267 

machine and under such conditions, however, as shall not interfere 
with its operation. 

This lease and license shall not be subject to either voluntary 
or involuntary assignment, but upon surrender of the license and 
the payment of all arrears thereunder, the Crown Cork & Seal Co. 
of Baltimore City will issue to such person as the lessee may des- 
ignate a new license, reserving only the rentals thereafter maturing 
and otherwise identical with tins license. 

If said lessee shall violate or fail to perform any of the terms or 
conditions of this instrument, then this lease or license shall, at the 
option of the lessor, be null and void, and said Crown Cork & Seal 
Co. of Baltimore City shall have the right at any time to take 
possession of the machine. 

This license shall not be vaHd unless confirmed by countersigna- 
ture of the Crown Cork & Seal Co. at its home office in Baltimore. 

Witness the signatures of said parties this day of , 

190 — . 

LICENSE TO OPERATE. 

Crown cork system and automatic crown machine. 

March 14, 19 10. 
To the Crown Seal & Cork Co., Baltimore: 

We hereby make application for license to operate your crown 
cork system and automatic crown machine, as covered by patents, 
No. 638354, dated December 5, 1899, and No. 643973, dated Feb- 
ruary 20, 1900, to be used in Boston, Mass., and request you to 
forward to our address one automatic crown machine, at $1,800, 
f. o. b., Baltimore. 

Upon the granting of the license we agree and obligate ourselves 
that the system and machine shall only be used and operated by 
us in connection with crown corks, purchased from the Crown Cork 
& Seal Co., and bottles made, by properly authorized manufac- 
turers, with the companj^'s standard finishing tools. 

It is agreed that the price of crown corks (plain) shall not ex- 
ceed 25 cents per gross, f. o. b., Baltimore. It is agreed that the 

shall have the benefit of any general reduction in 

the price of crown corks. 

It is further agreed that no claims for consequential damages 
shall be allowed by the Crown Cork & Seal Co. 



268 Industrial Combinations and Trusts 



AGREEMENT OF LICENSE AND LEASE OF ONE CROWN MACHINE. 

The Crown Cork & Seal Co., of Baltimore City, called the Crown 

Co., hereby licenses and leases to , doing business at 

Boston, Mass., called the lessee, one Crown machine of the stand- 
ard type below mentioned, and does hereby Ucense said lessee to 
use for the term and within the terms and limitations herein set 
forth, the Crovv'n Co.'s cork system, i. e., the said machine, and 
processes. This license is granted under the following United 
States patents, to mt: No. 473776, April 26, 1892; No. 608158, 
July 26, 1898; No. 638354, December 5, 1899; No. 643973? Feb- 
ruary 20, 1900; No. 779991, January 10, 1905; No. 908688, Jan- 
uary 5, 1909, and other letters patent heretofore or hereafter 
granted to the Crown Co. 

Type of fnachine. — The type of machine so leased, and annual 
rental payable therefor, is the following (i. e., the one not canceled) : 

Machine t^^e, automatic power Crown beer machine (rent), 

$180. 

Term of lease. — The term of this agreement commences on the 
date hereof and continues until terminated as herein provided. 
Either the Crown Co. or lessee may at their option, respectively, 
terminate this agreement. 

Rent. — The lessee shall pay to the CroT\Ti Co. the annual rent 
above stated for the type of machine leased; the rent shall be paya- 
ble in equal quarterly instalments on the ist days of January, 
April, July, and October; the first instalment shall commence on 
the first day of the month succeeding the shipment of the machine, 
and shall be a due proportion for the time from such date to the 
first quarterly-payment date. 

Termination. — This lease and Hcense may be terminated by 
either party at their options, respectively, and shall terminate on 
the date fixed therefor as herein pro\'ided. The Crown Co. may 
terminate the same by written notice addressed to the lessee at 
his address herein given, mailed at Baltimore, and shall take effect 
60 days after the maihng date. The lessee may terminate by sim- 
ilar written notice addressed to the Crown Co. at Baltimore, to- 
gether with the delivery of the machine, f. o. b. Baltimore, to the 
Crown Co., and termination by the lessee shall take effect on such 
delivery, and shall not take effect unless or until such delivery is 
made. No abatement of rent shall be made while the machine is 
in the lessee's possession or until such delivery at Baltimore. On 



The Patent Monopoly 269 

any termination, all liabilities of the lessee to the Crown Co., includ- 
ing arrears of rent, and a due proportion of the accruing quarter's 
rent to the date it takes effect, shall be at once due and payable. 

And the said parties hereby agree as follows: The lessee shall not 
be obliged to insure the machine or be liable for its value destroyed 
by fire or lost in transportation. All deliveries of the machine by 
or to the Crown Co. shall be f. o. b. Baltimore, and the lessee shall 
pay all transportation charges and all taxes on the machine. The 
said machine shall be used only by said lessee at his place of busi- 
ness in the city above stated. The lessee shall keep the machine 
in good working order and condition at his own expense and pay 
the cost of repair of any machine not in such condition when re- 
turned to the Crown Co., whether the lease be terminated by either 
party. Repair parts must be obtained from the Crown Co. only. 
The Crown Co. shall in no event be liable for any consequential 
damages or injury to business claimed to arise from alleged defects 
in leased machines or for defects in quaHty of or failure to deliver 
crowns; nor shall the payment of the rent be affected thereby. 

This license and lease shall not be subject to voluntary or involun- 
tary alienation, but upon surrender hereof and the payment of all 
arrears hereunder and all of the lessee's Uabihty to the Crown Co., 
the Crown Co. will issue to the lessee's nominee a new lease and 
license, reserving only the rentals thereafter maturing and other- 
wise identical with this instrument. 

This instrument is not valid unless signed or confirmed by the 
Crown Co. at its home office, Baltimore, Md. 

Dated ist day of June, 191 1. 



The Crown Cork & Seal Co. 



Secretary. 

Exhibit 4 

sidney henry v. a. b. dick company ^ 

Mr. Justice Lurton delivered the opinion of the court: 
This cause comes to this court upon a certificate under the sixth 
section of the court of appeals act of March 31, 1891. 

1 Will appear in 2 23 or 2 24 U. S. The fact that the excerpts in this exhibit are 
taken from an advance copy of the decree will account for such slight differences 
in punctuation and the use of italics as may be observed. — Ed. 



270 Industrial Combinations and Trusts 

The facts and the questions certihed, omitting the terms of the 
injunction awarded by the circuit court, are these: 

This action was brought by the complainant, an IHinois corporation, for the 
infringement of two letters patent, owned by the complainant, covering a stencil- 
duplicating machine known as the rotary mimeograph. The defendants are 
doing business as copartners in the city of New York. The complainants sold 
to one Christina B. Skou, of New York, a rotary mimeograph embod}dng the 
invention described and claimed in said patents under license which was attached 
to said machine, as follows: 

"license restriction. 

"This machine is sold by the A. B. Dick Co. with the license restriction that 
it may be used only with the stencil paper, ink, and other supplies made by A. B. 
Dick Co., Chicago, United States of America. 

"The defendant, Sidney Henry, sold to Miss Skou a can of ink suitable for 
use upon said mimeograph with knowledge of the said Hcense agreement and 
with the expectation that it would be used in connection with said mimeograph. 
The ink sold to Miss Skou was not covered by the claims of said patent. " 

question certified. 

Upon the facts above set forth, the question concerning which this court de- 
sires the instruction of the Supreme Court is: 

Did the acts of the defendants constitute contributory infringement of the 
complainant's patents? 

There could have been no contributory infringement by the de- 
fendants, unless the use of Miss Skou's machine with ink not made 
by the complainants would have been a direct infringement. It 
is not denied that she accepted the machine with notice of the con- 
ditions under which the patentee consented to its use. Nor is it 
denied that thereby she agreed not to use the machine otherwise. 
What defendants say is that this agreement was collateral, and 
that its validity depended upon principles of general law, and that 
if valid the only remedy is such as is afforded by general principles 
of law. Therefore they say that the suit is not one arising under 
the patent law, and one not cognizable in a Federal court unless 
diversity of citizenship exists. 



We are unable to assent to these suggestions. We do not pre- 
scribe the jurisdiction of courts. Federal or State, but only give 
effect to it as fixed by law. If a bill asserts a right under the patent 
law to sell a patented machine subject to restrictions as to its use, 
and alleges a use in violation of the restrictions as an infringement 



The Patent Monopoly 271 

of the patent, it presents a question of the extent of the patentee's 
privilege, which, if determined one way, brings the prohibited use 
within the provisions of the patent law, or, if determined the other 
way, brings into operation only principles of general law. Ob- 
viously a suit for infringement, which must turn upon the scope 
of the monopoly or privilege secured to a patentee, presents a case 
arising under the patent law. The jurisdiction of the circuit court 
over such cases has, for more than a century, been exclusive by the 
express terms of the statute, although for the most part its jurisdic- 
tion over other kinds of suits arising under the Constitution and 
laws of the United States is only concurrent with that of the State 
courts. 



That the license agreement constitutes a contract not to use 
the machine in a prohibited manner is plain. That defendants 
might be sued upon the broken contract, or for its enforcement or 
for the forfeiture of the Hcense, is likewise plain. But if by the use 
of the machine in a prohibited way Miss Skou infringed the patent, 
then she is also liable to an action under the patent law for infringe- 
ment. Now, that is primarily what the bill alleged, and this suit 
is one brought to restrain the defendants as aiders and abettors to 
her proposed infringing use. 



The books abound in cases upholding the right of a patentee 
owner of a machine to license another to use it subject to any 
qualification in respect of time, place, manner, or purpose of use 
which the licensee agrees to accept. Any use in excess of the 
license would obviously be an infringing use and the license would 
be no defense. (Robinson on Patents, sees. 915, 916, and notes.) 
This is so elementary we shall not stop to cite cases. 

The contention is not that a patentee may not permit the use of a 
patented thing with such qualifications as he sees fit to impose, and 
that a prohibited use will be an infringing one, but that he can only 
keep the article within the control of the patent by retaining the 
title. To put the contention in another form — it is that any transfer 
of the patentee's property right in a patented machine carries with 
it the right to use the entire invention so long as the identity of the 
machine is preserved, irrespective of any restrictions placed by the 
patentee upon the use of the article and accepted by the buyer. 



272 Industrial Combinations and Trusts 

It is said that by such a sale the patentee "disposes of all his rights 
under his patent, and thereby removes the article from the opera- 
tion of the patent law." If he attempts to sell the machine 
for specified uses only and prohibit all others, the restriction is 
disposed of as constituting a collateral agreement, such as any 
vendor of personal property might impose, and enforceable, if 
valid at all, only as a collateral contract. 

The issue is a plain one. If it be sound, it concludes the case, and 
our response should be a negative one, since the violation of a mere 
collateral contract, which is not also an infringement of the patent, 
would not be a case arising under the patent law. But is it true that 
where a patentee sells his patented machine for a specific and 
Hmited use, he does not thereby reserv^e to himself, as a patentee, 
the exclusive right to all unpermitted uses which may be made of 
his invention as embodied in the machine sold? Ob\dously, this is 
a question arising under the patent law. By a sale of a patented 
article subject to no conditions the purchaser undeniably acquires 
the right to use the article for all the purposes of the patent so long 
as it endures. He may use it where, w^hen, and how he pleases, 
and may dispose of the same unlimited right to another. This has 
long been the settled doctrine of this and all patent courts 



An absolute and unconditional sale operates to pass the patented 
thing outside the boundaries of the patent, because such a sale 
implies that the patentee consents that the purchaser may use the 
machine so long as its identity is preserved. This implication 
arises, first, because a sale, without reservation, of a machine whose 
value consists in its use, for a consideration, carries with it the 
presumption that the right to use the particular machine is to 
pass with it. The rule and its reason is thus stated in Robinson on 
Patents (sec. 824): 

The sale must, furthermore, be unconditional. Not only may the patentee 
impose conditions limiting the use of the patented article upon his grantees 
and express licensees, but any person ha\dng the right to sell may at the time 
of sale restrict the use of his vendee within specific boundaries of time or place 
or method, and these will then become the measure of the implied license aris- 
ing from the sale. 

The argument for the defendants ignores the distinction between 
the property right in the materials composing a patented machine 
and the right to use for the purpose and in the manner pointed out 



The Patent Monopoly 273 

by the patent. The latter may be and often is the greater element 
of value, and the buyer may desire it only to apply to some or all of 
the uses included in the invention. But the two things are separable 
rights. If sold unreservedly, the right to the entire use of the inven- 
tion passes, because that is the impUed intent; but this right to 
use is nothing more nor less than an unrestricted license presumed 
from an unconditional sale. A license is not an assignment of any 
interest in the patent. It is a mere permission granted by the 
patentee. It may be a Hcense to make, sell, and use, or it may be 
limited to any one of these separable rights. If it be a license to 
use, it operates only as a right to use without being liable as \a in- 
fringer. If a licensee be sued, he can escape liability to the patentee 
for the use of his invention by showing that the use is within his 
license. But if his use be one prohibited by the license, the latter 
is of no avail as a defense. As a Hcense passes no interest in the 
monopoly, it has been described as a mere waiver of the right to 
sue by the patentee. (Robinson on Patents, sees. 806, 808.) 



It is plain from the power of the patentee to subdivide his exclu- 
sive right of use that when he makes and sells a patented device 
that the extent of the hcense to use which is carried by the sale 
must depend upon whether any restriction was placed upon the 
use and brought home to the person acquiring the article. 

That here the patentee did not intend to sell the machine made 
by it subject to an unrestricted use is of course undeniable from 
the words upon the machine, viz: 

LICENSE RESTRICTION. 

This machine is sold by the A. B. Dick Co., with the license restriction that it 
may be used only with the stencil, paper, ink, and other supplies made by A. B. 
Dick Co. 



If, then, we assume that the violation of restrictions upon the 
use of a machine made and sold by the patentee may be treated as 
infringement, we come to the question of the kind of limitation 
which may be lawfully imposed upon a purchaser. 

To begin with, the purchaser must have notice that he buys with 
only a qualified right of use. He has a right to assume, in the ab- 
sence of knowledge, that the seller passes an unconditional title 
to the machine, with no limitations upon the use. Where, then, is 



274 Industrial Combinations and Trusts 

the line between a lawful and an unlawful qualification upon the 
use? Tliis is a question of statutory construction. But with what 
eye shall we read a meaning into it? It is a statute creating and 
protecting a monopoly. It is a true monopoly, one having its 
origin in the ultimate authority, the Constitution. Shall we deal 
Tvdth the statute creating and guaranteeing the exclusive right which 
is granted to the inventor with the narrow scrutiny proper when a 
statutory right is asserted to uphold a claim which is lacking in 
those moral elements which appeal to the normal man? Or shall 
we approach it as a monopoly granted to subserve a broad pubHc 
policy, by which large ends are to be attained, and therefore to be 
construed so as to give effect to a wise and beneficial purpose? That 
we must neither transcend the statute nor cut down its clear mean- 
ing is plain 



If the stipulation in an agreement between patentees and dealers 
in patented articles, which, among other things, fixed a price below 
which the patented articles should not be sold, would be a reason- 
able and valid condition, it must follow that any other reasonable 
stipulation not inherently violative of some substantive law, im- 
posed by a patentee as part of a sale of a patented machine, would 
be equally valid and enforceable. It must also follow that if the 
stipulation be one which qualifies the right of use in a machine 
sold subject thereto, so that a breach would give rise to a right of 
action upon the contract, it would be at the same time an act of in- 
fringement, giving to the patentee his choice of remedies. 

But it has been very earnestly said that a condition restricting 
the buyer to use it only in connection with ink made by the patentee 
is one of a character which gives to a patentee the power to extend 
his monopoly so as to cause it to embrace any subject not within 
the patent which he chooses to require that the invention shall be 
used in connection with. Of course the argument does not mean 
that the effect of such a condition is to cause things to become 
patented which were not so without the requirement. The stencil, 
the paper, and the ink m.ade by the patentee will continue to be 
unpatented. Anyone v/ill be as free to make, sell, and use like 
articles as they would be Vvdthout this restriction, save in one par- 
ticular, namely, they may not be sold to a user of one of the pat- 
entee's machines with intent that they shall be used in violation 
of the license. To that extent competition in the sale of such 



The Patent Monopoly 275 

articles, for use with the machine, will be affected, for sale to such 
users for infringing purposes will constitute contributory infringe- 
ment. But the same consequence results from the sale of any 
article to one who proposes to associate it with other articles to 
infringe a patent when such purpose is known to the seller. But 
could it be said that the doctrine of contributory infringement 
operates to extend the monopoly of the patent over subjects not 
within it because one subjects himself to the penalties of the law 
when he sells unpatented things for an infringing use? If a patentee 
says, "I may suppress my patent if I will; I may make and have 
made devices under my patent, but I will neither sell nor permit 
anyone to use the patented things," he is within his right, and none 
can complain. But if he says, ^'I will sell with the right to use 
only with other things proper for using with the machines, and 
I will sell at the actual cost of the machines to me, provided you 
will agree to use only such articles as are made by me in connection 
therewith," if he chooses to take his profit in this way, instead of 
taking it by a higher price for the machines, has he exceeded his 
exclusive right to make, sell, and use his patented machines? The 
market for the sale of such articles to the users of his machine, 
which, by such a condition, he takes to himself, was a market which 
he alone created by the making and selling of a new invention. 
Had he kept his invention to himself no ink could have been sold 
by others for use upon machines embodying that invention. By 
selling it subject to the restriction he took nothing from others and 
in no wise restricted their legitimate market. 



Neither can we see that the Habihty of the defendants for aiding 
and abetting an infringing use by Miss Skou would be different 
whether she had made her machine in open defiance of the rights 
of the patentee or had bought it under conditions Hmiting her 
right of use. If she had made it, she would have been liable to an 
action for infringement for making, and if she used it she would 
become liable for such infringing use. But if the defendants knew 
of the patent and that she had unlawfully made the patented 
article, and then sold her ink or other supplies, without which she 
could not operate the machine, with the intent and purpose that 
she should use the infringing article by means of the ink supplied 
by them, they would assist in her infringing use. 



276 Industrial Combinations and Trusts 

" Contributory infringement," says Judge Townsend in Thomas ^- 
Houston Co. V. Kelsey Co. (72 Fed. Rep., 1016), "has been well 
defined as the intentional aiding of one person by another in the 
unlawful making, or selling, or using of the patented invention." 
To the same effect are Wallace v. Holmes (29 Fed. Cases, 79); 
Risdon v. Trent (92 Fed. Rep., 375); Thomson-Houston Co. v. 
Ohio Brass Works (80 Fed. Rep., 721) ; American Graphophone Co. 
V. Hawthorne (92 Fed. Rep., 516). 

In the Risdon case a member of the firm which made the plans 
for the construction of certain mining machinery to be made in the 
owner's shop, and then superintended its erection at the mine, was 
held to be guilty of infringement, though he neither personally 
made nor used the machines which were found to be an infringe- 
ment of valid patents. In American Graphophone Co. v. Haw- 
thorne one who sold a machine with knowledge that it was to be 
used to produce an infringing article was held to be liable as an 
infringer. 

For the purpose of testing the consequence of a ruling which will 
support the lawfulness of a sale of a patented machine for use only 
in connection with supplies necessary for its operation bought from 
the patentee, many fanciful suggestions of conditions which might 
be im^posed by a patentee have been pressed upon us. Thus it is 
said that a patentee of a coffee pot might sell on condition that it 
be used only with coffee bought from him, or, if the article be a 
circular saw, that it might be sold on condition that it be used 
only in sawing logs procured from him. These and other illustra- 
tions are used to indicate that this method of marketing a patented 
article may be carried to such an extent as to inconvenience the 
public and involve innocent people in un%\'itting infringements. But 
these illustrations all fail of their purpose, because the pubhc is 
always free to take or refuse the patented article on the terms im- 
posed. If they be too onerous or not in keeping with the benefits, 
the patented article will not find a market. The pubHc, by per- 
mitting the invention to go unused, loses nothing which it had 
before, and when the patent expires will be free to use the invention 
without compensation or restriction. This was pointed out in the 
paper-bag case, w^here the inventor would neither use himself nor 
allow others to use, and yet was held entitled to restrain infringe- 
ment, because he had the exclusive right to keep all others from 
using during the life of the patent. This larger right embraces the 
^ In error; should be " Thomson." — Ed. 



The Patent Monopoly 277 

lesser of permitting others to use upon such terms as the patentee 
chooses to prescribe. It must not be forgotten that we are dealing 
with a constitutional and statutory monopoly. An attack upon 
the rights under a patent because it secures a monopoly to make, 
to sell, and to use is an attack upon the whole patent system. We 
are not at liberty to say that the Constitution has unwisely provided 
for granting a monopolistic right to inventors or that Congress has 
unwisely failed to impose limitations upon the inventor's exclusive 
right of use. And if it be that the ingenuity of patentees in devising 
ways in which to reap the benefit of their discoveries requires to be 
restrained, Congress alone has the power to determine what restraints 
shall be imposed. As the law now stands it contains none, and the 
duty which rests upon this and upon every other court is to expound 
the law as it is written. Arguments based upon suggestions of public 
policy not recognized in the patent laws are not relevant. The field 
to which we are invited by such arguments is legislative, not judicial.^ 
The decisions of this court as we have construed them do not so 
Umit the privilege of the patentee, and we could not so restrict a 
patent grant without overruling the long line of judicial decisions 
from circuit courts and circuit courts of appeal heretofore cited, 
thus inflicting disastrous results upon individuals who have made 
large investments in rehance upon them. 

The conclusion we reach is that there is no difference in principle 
between a sale subject to specific restrictions as to the time, place, 
or purpose of use and restrictions requiring a use only with other 
things necessary to the use of the patented article purchased from 
the patentee. If the violation of the one kind is an infringement, 
the other is also 



We come then to the question as to whether "the acts of the de- 
fendants constitute contributory infringement of the complainants' 
patent." 

The facts upon which our answer must be made are somewhat 
meager. It has been urged that we should make a negative reply 
to the interrogatory as certified, because the intent to have the ink 
sold to the licensee used in an infringing way is not sufficiently made 
out. Undoubtedly a bare supposition that by a sale of an article 
which, though adapted to an infringing use, is also adapted to other 
and lawful uses, is not enough to make the seller a contributory 
1 Italics are the editor's. — Ed. 



278 Industrial Combinations and Trusts 

infringer. Such a rule would block the wheels of commerce. There 
must be an intent and purpose that the article sold Vvill be so used. 
Such a presumption arises when the article so sold is only adapted 
to an infringing use. Rupp v. Elliott (131 Fed., 730). It may also 
be inferred where its most conspicuous use is one which will cooper- 
ate in an infringement when sale to such user is invoked by adver- 
tisement. Kalem Co. v. Harper Brothers, decided at this term and 
not yet reported. 

These defendants are, in the facts certified, stated to have made 
a direct sale to the user of the patented article, with knowledge 
that under the license from the patentee she could not use the ink, 
sold by them directly to her, in connection with the licensed ma- 
chine, without infringement of the monopoly of the patent. It is 
not open to them to say that it might be used in a noninfringing way, 
for the certified fact is that they made the sale ^'with the expecta- 
tion that it would be used in connection with said mimeograph." 
The fair interpretation of the facts stated is that the sale was with 
the purpose and intent that it would be so used. 

So understanding the import of the question in connection with 
the facts certified, we must answer the question certified affirma- 
tively. 

Mr. Justice Day did not hear the argument and took no part in 
the decision of this case. 

Mr. Chief Justice White, with whom concurred Mr. Justice 
Hughes and Mr. Justice Lamar, dissenting: 

My reluctance to dissent is overcome in this case: First, because 
the ruling now made has a much wider scope than the mere interest 
of the parties to this record, since, in my opinion, the effect of that 
ruling is to destroy, in a very large measure, the judicial authority 
of the States by unwarrantedly extending the Federal judicial 
power. Second, because the result just stated, by the inevitable 
development of the principle announced, may not be confined to 
sporadic or isolated cases, but will be as broad as society itself, 
affecting a multitude of people and capable of operation upon 
every conceivable subject of human contract, interest, or activity, 
however intensely local and exclusively within State authority 
they otherwise might be. Third, because the gravity of the con- 
sequences which would ordinarily arise from such a result is greatly 
aggravated by the ruling now made, since that ruUng not only 
vastly extends the Federal judicial power, as above stated, but as 
to all the innumerable subjects to which the ruling may be made t(? 



The Patent Monopoly 279 

apply, makes it the duty of the courts of the United States to test 
the rights and obligations of the parties, not by the general law of 
the land, in accord with the conformity act, but by the provisions 
of the patent law, even although the subjects considered may not 
be within the embrace of that law, thus disregarding the State law, 
overthrowing, it may be, a settled public policy of the State, and 
injuriously affecting a multitude of persons. Lastly, I am led to 
express the reasons which constrain me to dissent, because of the 
hope that if my forebodings as to the evil consequences to result 
from the application of the construction now given to the patent 
statute be well founded, the statement of my reasons may serve a 
twofold purpose: First, to suggest that the application in future 
cases of the construction now given be confined within the narrow- 
est limits, and, second, to serve to make it clear that if evils arise 
their continuance will not be caused by the interpretation now given 
to the statute, but will result from the inaction of the legislative 
department in failing to amend the statute so as to avoid such evils. '^ 



I can not bring my mind to assent to the conclusion referred to, 
and shall state in the light of reason and authority why I can not do 
so. As I have said, the ink was not covered by the patent; indeed, 
it is stated in argument and not denied that a prior patent which 
covered the ink had expired before the sale in question. It there- 
fore results that a claim for the ink could not have been lawfully 
embraced in the patent, and if it had been by inadvertence allowed 
such claim would not have been enforceable. This curious anomaly 
then results, that that which was not embraced by the patent, 
which could not have been embraced therein and which if mistak- 
enly allowed and included in an express claim Vi^ould have been 
inefficacious, is now, by the effect of a contract held to be embraced 
by the patent and covered by the patent law. This inevitably 
causes the contentions now upheld to come to this, that a patentee 
in selling the machine covered by his patent has power by contract 
to extend the patent so as to cause it to embrace things which it 
does not include; in other words, to exercise legislative power of a 
far-reaching and dangerous character. Looking at it from another 
point of view and testing the contention by a consideration of the 
rights protected by the patent law and the rights which an inventor 
who obtains a patent takes under that law, the proposition reduces 
1 Italics are the editor's. 



28o Industrial Combinations and Trusts 

itself to the same conclusion. The natural right of anyone to make, 
vend, and use his invention, which but for the patent law might be 
invaded by others, is by that law made exclusive, and hence the 
power is conferred to exclude others from making, using, or vend- 
ing the patented invention. (Paper Bag case, 210 U. S., 424-425, 
and cases cited.) 

The exclusive right of use of the invention embodied in the ma- 
chine which the patent protected was a right to use it anywhere and 
everywhere for all and every purpose of which the machine as em- 
braced by the patent was susceptible. The patent was solely upon 
the mechanism, which, w^hen operated, w^as capable of producing 
certain results. A patent for this mechanism was not concerned in 
any way with the materials to be used in operating the machine, 
and certainly the right protected by the patent was not a right to 
use the mechanism with any particular ink or other operative 
materials. Of course, as the owner of the machine possessed the 
ordinary right of an owner of property to use such materials as he 
pleased in operating his patented machine and had the power in 
selling his machine to impose such conditions, in the nature of 
covenants not contrary to public policy as he saw fit, I shall assume 
that he had the power to exact that the purchaser should use only 
a particular character of materials. But as the right to employ 
any desired operative materials in using the patented machine was 
not a right derived from or protected by the patent law, but was a 
mere right arising from the ownership of property, it can not be 
said that the restriction concerning the use of the materials was a 
restriction upon the use of the machine protected by the patent 
law. When I say it can not be said I mean that it can not be so 
done in reason, since the inevitable result of so doing would be to 
declare that the patent protected a use which it did not embrace. 
And this, after all, serves to demonstrate that it is a misconception 
to qualify the restriction as one on the use of the machine, when in 
truth both in form and substance it was but a restriction upon the 
use of materials capable of being employed in operating the machine. 
In other words, every use which the patent protected was trans- 
ferred to Miss Skou, and the very existence of the particular re- 
striction under consideration presupposes such right of complete 
enjoyment, and because of its possession there was engrafted a con- 
tract restriction, not upon the use of the machine, but upon the 
materials. And these considerations are equally applicable to the 
exercise of the exclusive right to vend protected by the patent un- 



The Patent Monopoly 281 

less it can be said that by the act of selhng a patented machine and 
disposing of all the use of which it is capable a patentee is endowed 
with the power to amplify his patent by causing it to cover in the 
future things which at the time of the sale it did not embrace. 

But the result of this analysis serves at once again to establish, 
from another point of view, that the ruling now made in effect is 
that the patentee has the power, by contract, to extend his patent 
rights so as to bring within the claims of his patent things which 
are not embraced therein, thus virtually legislating by causing the 
patent laws to cover subjects to which, without the exercise of the 
right of contract, they could not reach, the result being not only to 
multiply monopolies at the will of an interested party, but also to 
destroy the jurisdiction of the State courts over subjects which 
from the beginning have been within their authority. 

The vast extent to which the results just stated may be carried 
will be at once apparent by considering the facts of this case and 
bearing in mind that this is not the suit of a patentee against one 
with whom he has contracted to enforce as against such person an 
act done in violation of a contract as an infringement, but it is 
against a third person who happened to deal in an ordinary com- 
modity of general use with a person with whom the patentee had 
contracted. And this statement shows that the effect of the ruling 
is to make the virtual legislative authority of the owner of a pat- 
ented machine extend to every human being in society, without 
reference to their privity to any contract existing between the pat- 
entee and the one to whom he has sold the patented machine. It is 
worthy of observation that the vast power which the ruling confers 
upon the holders of patented inventions does not alone cause con- 
troversies which otherwise would be subject to the State jurisdic- 
tion to become matters of exclusive Federal cognizance, but subjects 
the rights of the parties when in the Federal forum to the patent 
law, to the exclusion of the State law which otherwise would ap- 
ply, and it may be to the overthrow of the settled pubhc policy 
of the State wherein the dealings involved take place. All these 
results are in a measure comprehensively portrayed by the decree 
of the circuit court. They are, moreover, vividly shown by a ref- 
erence made by the court to and the putting aside as inapplicable 
of a previous decision of this court (Miles Medical Co. v. Park & 
Sons Co., 220 U. S., 373) which if here applied would cause the 
alleged hcense to be held void as against pubhc policy. As the 
theory upon which the Miles Medical Co. case is treated as inappli- 



282 Industrial Combinations and Trusts 

cable is that this case is one governed by the patent laws, and there- 
fore not within the rule of pubhc pohcy which the Miles case ap- 
plied, it is made indubitably clear that the ruhng now announced 
endows the patentee with a right by contract not only to produce 
the fundamental change as to jurisdiction of the State and Federal 
courts to which I have referred, but also to bring about the over- 
throw of the public policy both of the State and Nation, which I 
at the outset indicated was a consequence of the ruling now made. 

I do not think it necessary to stop to point out the innumerable 
subjects which wdll be susceptible of being removed from the opera- 
tion of State judicial power and the fundamental and radical char- 
acter of the change w^hich must come as a result of the principle 
decided. But, nevertheless, let me give a few illustrations: 

Take a patentee selling a patented engine. He will now have the 
right by contract to bring under the patent laws all contracts for coal 
or electrical energy used to afford power to work the machine or even 
the lubricants e^nployed in its operation. Take a patented carpenter^ s 
plane. The power now exists in the patentee by contract to validly 
confine a carpenter purchasing one of the planes to the use of lumber 
sawed from trees grown on the land of a particular person or sawed 
by a particular mill. Take a patented cooking utensil. The power is 
now recognized in the patentee to bind by contract one who buys the 
utensil to use in connection with it no other food supply but that sold 
or made by the patentee. Take the invention of a patented window 
frame. It is now the law that the seller of the frame may stipulate 
that no other material shall be used in a house in which the window 
frames are placed except such as may be bought from the patentee and 
seller of the frame. Take an illustration which goes home to everyone — 
a patented sewing machine. It is now established that by putting on 
the machine, in addition to the notice of patent required by law, a notice 
called a license restriction, the right is acquired, as against the whole 
world, to control the purchase by users of the machine of thread, needles, 
and oil lubricants or other materials convenient or necessary for opera- 
tion of the machine.'^ The illustrations might be multiplied in- 
definitely. That they are not imaginary is now" a matter of com- 
mon knowledge, for, as the result of a case decided some years ago 
by one of the circuit courts of appeal, which has been followed 
by cases in other circuit courts of appeal, to which reference will 
hereafter be made, what prior to the first of those decisions on a 
sale of a patented article was designated a condition of sale, gov- 
^ Italics are the editor's. 



The Patent Monopoly 283 

erned by the general principles of law, has come in practice to 
be denominated a license, restriction, thus, by the change of form, 
under the doctrine announced in the cases referred to, bringing 
the matters covered by the restriction within the exclusive sway 
of the patent law. As the transformation has come about in prac- 
tice since the decisions in question, the conclusion is that it is 
attributable as an effect caused by the doctrine of those cases. 
And, as I have previously stated, it is a matter of common knowl- 
edge that the change has been frequently resorted to for the pur- 
pose of bringing numerous articles of common use within the monop- 
oly of a patent when otherwise they would not have been embraced 
therein, thereby tending to subject the whole of society to a wide- 
spread and irksome monopolistic control. 



I pass by the English decisions relied upon with the remark that 
it is not perceived how they can have any persuasive influence on 
the subject in hand in view of the distinction between State and 
national power which here prevails and the consequent necessity, 
if our institutions are to be preserved, of forbidding a use of the 
patent laws which serves to destroy the lawful authority of the 
States and their public policy. I fail also to see the application of 
English cases in view of the possible difference between the public 
policy of Great Britain concerning the right, irrespective of the 
patent law, to make contracts with the monopolistic restriction 
which the one here recognized embodies and the public policy of 
the United States on that subject as established, after great con- 
sideration, by this court in Miles Medical Co. v. Park & Sons Co. 
(220 U. S., 373). See especially on this subject the grounds for 
dissent in that case expressed by Mr. Justice Holmes, referring to 
the English law, on page 413. 



But even if I were to put aside everything I have said and were 
to concede for the sake of argument that the power existed in a 
patentee, by contract, to accomplish the results which it is now 
held may be effected, I nevertheless would be unable to give my 
assent to the ruling now made. If it be that so extraordinary a 
power of contract is vested in a patentee, I can not escape the con- 
clusion that its exercise, like every other power, should be subject 



284 Industrial Combinations and Trusts 

to the law of the land. To conclude otherwise would be but to say 
that there was a vast zone of contract lying between rights under a 
patent and the law of the land, where lawlessness prevailed and 
wherein contracts could be made whose effect and operation would 
not be confined to the area described, but would be operative and 
effective beyond that area, so as to dominate and limit rights of 
every one in society, the law of the land to the contrary notwith- 
standing. 



What could more cogently serve to point to the reality and con- 
clusiveness of these suggestions than do the facts of this case? It is 
admitted that the use of the ink to work the patented machine was 
not embraced in the patent, and yet it is now held that by contract 
the use of materials not acquired from a designated source has be- 
come an infringement of the patent, and exactly the same law is 
applied as though the patent in express terms covered the use of 
ink and other operative materials. It is not, as I understand it, 
denied; and if it were, in the face of the decision in the Miles Medi- 
cal Co. case, supra, in reason it can not be denied that the particular 
contract which operates this result if tested by the general law 
would be void as against public policy. The contract, therefore, 
can only he maintained upon the assumption that the patent law and 
the issue of a patent is the generating source of an authority to con- 
tract to procure rights under the patent law not otherwise within that 
law, and which could not be enjoyed under the general law of the land.^ 
But here, as upon the main features of the case, it seems to me this 
court has spoken so authoritatively as to leave no room for such 
a view. 

^ Italics are the editor's. 



CHAPTER XI 

THE ABSORPTION OF THE TENNESSEE COAL, IRON AND 
RAILROAD COMPANY 

It is a matter of much regret that space does not permit the 
introduction of several exhibits on the absorption of the Tennessee 
Coal, Iron and Railroad Company by the United States Steel 
Corporation. A large mass of testimony upon that subject is 
available in the Stanley Investigation. Excerpts from the testimony 
of Messrs. Schley and Ledyard, Colonel Roosevelt and others 
would have added much to the book. It is hoped however that 
the narrative which follows will be sufficient to enable the reader 
to understand the transaction in its general outlines. It should 
be added that the other testimony does not corroborate Judge Gary 
in all points. — Ed. 

Exhibit i 

narrative of judge elbert h. gary ^ 

Mr. Littleton. I will call your attention to a statement made by 
Mr. John Moody, and ask you if you dissent from it or agree with it: 

The acquisition of this organization — 

That is, the Tennessee Coal & Iron Co. — 

has added great potential value to the steel organization and has increased 
the tangible equity of its common-stock issue to a far greater extent than is 
commonly realized. The Tennessee Coal & Iron properties embrace, besides 
important manufacturing plants, nearly 450,000 acres of mineral lands in the 
Birmingham section of Alabama. As shown in the report of the Tennessee 
Co. in 1904, when an appraisal was made by outside parties, these lands con- 
tain approximately 400,000,000 tons of first-class low-grade ore and more than 
1,200,000,000 tons of coal, of which about one-half is coking coal. This esti- 
mate indicates that the deposits embraced are even in excess of those of the 
great Lake Superior properties controlled by the corporation, including the 
Great Northern ore bodies. This entire property was acquired, as is well 
known, on very favorable terms. 

That I do not ask you to assent to, but I wish to ask you about 
that. The description given there in that article is substantially 
correct? 

1 Hearings before the Committee on Investigation of United States Steel 
Corporation, 62nd Cong., 2nd Sess., 1911-1912, pp. 124-143. 

28s 



286 Industrial Combinations and Trusts 

Mr. Gary. I do not agree with that at all; no. 

Mr. Littleton. How much ore did it add to the possessions of 
the United States Steel Corporation? 

Mr. Gary. There was an estimate, at the time we purchased, of 
700,000,000 tons of ore, about 400,000 tons, as I remember, of which 
was usable, on top of the other — usable by their method. However, 
as you know, probably, it was an inferior grade of ore and not of 
very great value, in my opinion, for reasons which I will give if 
you desire. You could hardly consider that in connection with the 
Lake Superior ores, so called, or as adding to the Lake Superior 
ores. 

Mr. Littleton. I asked you the question so as to make it clear. 

Mr. Gary. Yes. 

Mr. Littleton. What do you consider was the amount of ore you 
obtained by reason of procuring control of the Tennessee Coal & 
Iron Co.? 

Mr. Gary. I believe we obtained five or six hundred million tons 
of ore, a portion of which, at least, w^as at present usable in that 
locality, provided there was a market for it — that is, a market for 
the iron or the steel which could be manufactured at that point. 

Mr. Littleton. How much coal did you acquire by the acquisi- 
tion of the Tennessee Coal & Iron Co.? 

Mr. Gary. We suppose a large body; perhaps more than 
1,000,000,000 tons, and perhaps 1,000,200,000, as stated there. 

Mr. Littleton. Did you consider that a valuable acquisition? 

Mr. Gary. Why, it had value, of course; but there was plenty 
of coal like it wliich could be bought at a very low price, and there 
is a good deal yet. And there is plenty of ore property like that 
which could be bought, and can be at the present time, I think, 
by the acre, at, say $50 to $100 an acre. Some of you ^vill know 
what that means. 

Mr. Littleton. Was the Tennessee Coal & Iron ore a good grade 
for the making of ordinary pig iron? 

Mr. Gary. That could be utiHzed in the manufacture of fairly 
good pig iron, at a certain cost. 

Mr. Littleton. What did the property consist of in the way of 
improvements for the purpose of mining and making steel ; or, to be 
more specific, what was the output of the furnaces, per ton, per 
annum? 

Mr. Gary. A full statement of the properties of that company, at 
that time, is found on pages 26 and 27 of the annual report of 1907. 



Absorption or the Tennessee Railroad Company 287 

Mr. Littleton. I am not going to follow the details of that so 
closely as to require consultation. All that I am going to do is to ask 
you the topical questions and then go to another point. It has 
been stated that the capacity of the blast furnaces of the company 
in 1907 was about 160,000 tons per annum — that is, I speak of the 
Tennessee Coal & Iron Co.? 

Mr. Gary. That is probably right. 

Mr. Littleton. And that of the developed coal and ore mines 
about 20,000 tons per day? 

Mr. Gary. That may be right. I do not know. That is probably 
right. In the year 1907 there was produced about 1,500,000 tons of 
ore — that amount was mined; there were produced about 244,000 
tons of limestone and dolomite; and coal, exclusive of coking coal, 
about 1,700,000 tons; and of coke, about 1,100,000 tons. There 
were 602,000 tons of pig iron, about; open-hearth steel, ingots, and 
castings, about 243,000 tons; rails, about 149,000 tons; billets, 
plates, and bars, about 38,000 tons. 

Mr. Littleton. This article which I called your attention to, 
which I have consulted, continues with this statement: 

If we compare this capacity with that of the actual production of all the 
other properties owned by the Steel Corporation, outside of the Tennessee 
Coal & Iron Co., for the year 1907, we will get the following results: Blast- 
furnace products, 10,819,968 tons; ore and coal mined and limestone quarried, 
39,576,161 tons. In other words, the capacity of the new properties acquired, 
according to the figures above, is about 15 per cent of the total production 
of mining products of the entire corporation for last year and about 8 per cent 
of the blast-furnace products. 

Mr. Gary. I have given you the production, and I am prepared 
to give you the results in figures of operations -^ore we secured the 
property, and since, after an expenditure of "100,000 or more 

by us, including the payment of $6,500,000 w - om^any 

owed when we took it over. These valucb 
fictitious. 

Mr. Littleton. What was the capitalization of ti 
Coal & Iron Co. at the time you took it over? 

Mr. Gary. I gave that. 

Mr. Littleton. $32,000,000, was it not? 

Mr. Gary. There was $29,950,000 of common stock and $124,000 
and over of preferred stock. The bonded indebtedness was $14 ,419,- 
000, and purchase-money notes, $826,000. It owed current liabili- 
ties, floating debt, $4,168,102, considerable of which was past due. 



288 Industrial Combinations and Trusts 

Mr. Littleton. Did you or your company solicit the purchase 
of the Tennessee Coal & Iron Co., or was it offered to you by those 
who had the authority to sell it? 

Mr. Gary. It was offered, one way or another; offered many 
times, at about the time we acquired it. It was offered by Lewis 
Cass Ledyard, who was the attorney for Col. OUver Payne, and 
who had been interviewed by Mr. Schley, of Moore & Schley; and 
I would like to suggest, if I may, that I think Mr. Lewis Cass 
Ledyard ought to be subpoenaed to state the exact facts which led 
up to his coming to J. P. Morgan to beg him to suggest to the 
United States Steel Corporation the propriety and the necessity 
for the purchase of those properties. 

Mr. Littleton. You understand it to be a fact that he will be 
subpoenaed. Judge Gary, if he can shed any light on this question. 

Mr. Gary. I am very sure his testimony will settle the question 
whether we desired to purchase the property, or whether the owners 
desired to sell the property. 

Mr. Littleton. Your imderstanding is that Mr. Ledyard came 
to Mr. Morgan as the initial step in the transaction? 

Mr. Gary. No doubt about it; and I would be very glad to give 
you the history of it, so far as I know it, if you desire. 

Mr. Littleton. I msh you would. 

Mr. Gary. Very well. In one way or another the stock of the 
Tennessee Coal & Iron Co. had been offered to the United States 
Steel Corporation, I will not say authoritatively or by the owners 
exactly, but by people who assumed to be acting between, or acting 
for the Tennessee people. Our people had been opposed to the pur- 
chase of the proper^- ^ at any price or on any basis, and had dis- 
tinctly said so. F" Ay, 1 think sometime in the early part of 1907 — 
not int'^nd "^ " ^ accurate as to dates — Mr. Morgan sent for me 
^n ' ' r. George Kessler who, as you know, was a wine 

A^ho had purchased some of this stock outside of the 
^ctte, as I will call it, had approached him, Mr. Morgan, 
itement that the stock of the Tennessee Coal & Iron Co. 
V. purchased at about 130, and asked me my opinion. I 
tL Mr. Morgan I did not think that it w^as worth half of that; I 
dia not think we could afford to take it at any such price; that I 
would like to bring Mr. Frick over to the bank and get his opinion. 
He came over to the bank, and Mr. Frick expressed about the same 
opinion. The matter was then dropped. I believe Mr. Morgan 
told me that afterwards he found out that Mr. Kessler represented 



Absorption of the Tennessee Railroad Company 289 

only himself, and did not represent the other people, as Mr. Morgan 
had supposed. 

Along about the 23d day of October, 1907, Mr. Morgan requested 
me to come over to the bank, and said Mr. Schley was very much in 
need of money, or securities which he could use at the bank. I 
think I saw Mr. Schley at the bank at that time; if not, I did later; 
but the business finally resulted in my accommodating Mr. Schley 
by loaning him $1,200,000 par value of our second bonds, and 
taking from him an agreement to return those bonds; and I re- 
ceived from him, as security for the fulfillment of his agreement, 
$2,000,000, par value, of the stock of the Tennessee Coal & Iron 
Co. 

The agreement provided, as I remember, that if the $1,200,000 
par value of bonds were not returned by April 23, 1908, the owner- 
ship of the $2,000,000 par value of the stock of the Tennessee 
Coal & Iron Co. should be and remain in the United States Steel 
Corporation. That was done as an accommodation to Mr. Schley 
at his very urgent request and because he stated it was absolutely 
necessary to protect him from financial trouble. That, you see, 
would be taking the Tennessee Coal & Iron Co. stock as security on 
the basis of 60. 

Mr. Littleton. Pardon me, do you know how much Mr. Schley 
had of the Tennessee Coal & Iron Co. stock at that time? 

Mr. Gary. No; I do not. I did not know anything about it at 
that time, except so far as appeared by this transaction. I have here 
the written agreement between the United States Steel Corporation, 
signed by myself as chairman, and Moore & Schley and the members 
of the firm of Moore & Schley, and under the circumstances and in 
view of the fact that he has heretofore appeared before a com- 
mittee and exposed the facts in regard to this I feel justified in 
giving all the facts, and I will furnish the committee a copy of this 
agreement. 

Mr. Littleton. Yes. 

Mr. Gary. I will exhibit it now to the committee, and I would 
like to retain this, of course, but will be glad to furnish you with a 
copy. 

Mr. Littleton. We will be very glad to have a copy. 

Mr. Gary. The next thing that occurred in relation to this pur- 
chase was about the 2d day of November, 1907. We were then in 
the midst of what I have termed a financial cyclone. There were 
runs on many banks throughout the city of New York, including 



290 Industrial Combinations and Trusts 

the Trust Co. of America, the Lincoln Trust Co., and very many 
other banks. The panic had extended all over the country, more 
or less. Banks in Chicago had drawn their money from the New 
York banks so far as they could, and banks in other cities had col- 
lected their moneys. It was impossible for depositors to get out 
of the banks throughout the country the money they had in the 
banks. It was impossible for business men to borrow money. 
Loans were being called in New York, Chicago, St. Louis, and va- 
rious other cities. As an illustration, a president, or vice president, 
of one of the trust companies in New York called me on the phone 
to say that unless the bank could secure $1,000,000 in credits that 
day it would have to close its doors, and asked me to help if I could. 
I appUed to J. P. Morgan & Co., who had received pledges from 
various bankers there to furnish certain amounts of moneys or 
credits, for assistance, and they stated that they had so many 
applications and had so much business of this kind on hand that 
they could not devote any time or attention to it, and asked me to 
find out if this Trust Co. was entitled to any relief, and I asked my 
own people, comptroller and assistant treasurer, to go to that bank 
and make an examination of it. I think they spent the whole 
night doing so. The next morning I received their report and in 
turn reported to J. P. Morgan & Co. that the bank had securities 
enough to entitle it to relief, and $1,000,000 was furnished, and 
afterwards, I think, a good deal more. The bankers of our city 
were in session almost night and day. I was at Mr. Morgan's 
library several nights nearly all night. Many of the leading bankers 
of our city were there nearly all night. There is no doubt that there 
was every indication that we were in the throes of a panic which 
might lead to the most disastrous results, including the suspension 
of a large number of banks, and the failure of a great many different 
people. To one who could see this, who could talk with the people 
and talk not only with the bankers themselves but the depositors 
and people generally, there could be no possible doubt that the 
country was in very grave danger of one of the worst financial 
panics that has ever been witnessed in this country. I have not 
undertaken to describe it, or do any more than refer to it. But at 
this time, I say, Mr. Morgan telephoned a request to me to come 
to his library, and I went. I found Mr. Lewis Cass Ledyard, and, 
I think, Mr. Schley was with him; he was on several occasions, 
although I did not talk with Mr. Schley at the first interview. 
Mr. Ledyard was the counsel of Mr. Payne. 



Absorption of the Tennessee Railroad Company 291 

Mr. LiNDABURY. Oliver? 

Mr. Gary. Oliver Payne. He was one of the gentlemen named in 
what has been called the "syndicate," which had purchased a con- 
trolling interest in the Tennessee Coal & Iron Co. That syndicate 
was made up of a number of very rich people. 

Mr. Littleton. Right on that head, and before proceeding 
further, is it or is it not a fact that Moore & Schley held the stock 
of the Tennessee Coal & Iron Co. for and on behalf of a syndicate 
of gentlemen? 

Mr. Gary. A majority of the stock. 

Mr. Littleton. A majority of it; on behalf of a syndicate of 
gentlemen comprising O. H. Payne, who had 10,300 shares; L. C. 
Hanna, who had 10,300 shares; J. P. Duke, who had 10,300 shares; 
E. J. Berwind, who had 10,300 shares; J. W. Gates, who had 10,300 
shares; A. N. Brady, who had the same amount; G, A. Kessler, who 
had the same amount; Oakleigh Thorne, who had the same amount; 
E. W. Oglebay, who had 5,150 shares; H. S. Black, who had 5,150 
shares; F. D. Stout, who had 5,150 shares; J. W. Simpson, who had 
5,150 shares; G. W. French, who had 2,500 shares; S. G. Cooper, 
who had 1,500 shares; and J. A. Topping, who had 1,000 shares? 

Mr. Gary. I think that is correct, except I do not think Kessler 
was in the original syndicate. I think he bought outside, and 
Schley finally took his stock with the rest and made some advances 
on it. 

Mr. Littleton. With that qualification, then, the situation at 
that juncture was that Moore & Schley held, for and on behalf of 
these gentlemen who comprised the syndicate, 118,300 shares of the 
Tennessee Coal & Iron Co; that is your understanding? 

Mr. Gary. Yes. 

Mr. Littleton. Now you may go ahead. 

Mr. Gary. Mr. Ledyard stated that Moore & Schley were in 
very great financial distress. I think he stated it perhaps more 
strongly than Mr. Schley stated it when he was before the Judiciary 
Committee of the Senate, although I read that statement to-day, 
and I noticed that Mr. Schley testified that he was in great finan- 
cial distress at that time, and did not know what would become of 
him unless he secured help by the sale of this stock. I think Mr. 
Ledyard stated that Moore & Schley were largely indebted to 
Mr. Payne, and had a great many of his securities; that Moore & 
Schley had deposited with their securities on an indebtedness aggre- 
gating more than $30,000,000 a large amount of the Tennessee Coal 



292 Industrial Combinations and Trusts 

& Iron stock as collateral security in a very great many banks in 
New York; that these banks had called these loans, or insisted 
upon Moore & Schley taking up the Tennessee Coal & Iron stock, 
for the reason that it was not salable. It had been a stock that over 
a period of years had been put up from a very low figure to a very 
high figure, being in the control of a syndicate which, I will not say 
manipulated it — I had nothing to do with it — but it influenced the 
greatest fluctuations in it. That is very easily ascertainable. 

Mr. Bartlett. They had this stock up in various banks, you 
say, but it was rather a fact, was it not, that it was up in the trust 
company of which Mr. Oakleigh Thorne was president? 

Mr. Gary. He had about four hundred-odd thousand of them up 
at that bank, as I understand. I understood from Mr. Ledyard 
that Moore & Schley had loaned to their customers who had bought 
this stock and put it in, sums of money, and then they, Moore & 
Schley, in turn had pledged this stock with these banks as collateral 
security, in a great many different banks, aggregating, in all, about 
$6,000,000. That was the statement as I understood it, as I re- 
member it. 

Mr. Ledyard said that, in his opinion, there was no possible 
way of preventing the failure of Moore & Schley unless we pur- 
chased this stock, and he believed if Moore & Schley failed it meant 
the failure of a great many banks. Mr. Morgan said to me, "I 
do not know whether the United States Steel Corporation can 
afford to buy this stock or not; I will express no opinion on that 
subject. But I will say that, in my opinion, if it does not buy the 
stock, or unless it or some one else furnishes relief at this partic- 
ular time, there is not any man on earth can say what the result 
will be in the financial circles of this country. In my opinion, the 
circumstances make the conditions very critical, and if you can 
see your way clear to buy this stock, there is no doubt it will help 
the situation. Now, I turn Mr. Ledyard over to you and you can 
take up and consider this question and see what, if anything, you 
can do." I said to Mr Morgan, "In the first place, I would not 
think of considering the purchase of this stock without going to 
Washington first and taking the matter up with the President or 
the Department of Justice, or both." He said, "Why? Have 
they any right to say whether you buy or not?" I said, "No; they 
have not. But here is a financial crisis, and from your standpoint 
the object of buying this stock would be to allay this storm, to 
assist in overcoming this panic, and if the Department of Justice 



Absorption of the Tennessee Railroad Company 293 

or the President should find out we had purchased, or were about to 
purchase it, and should enjoin us from purchasing on the ground 
that it would add to our holdings and thereby raise the question of 
creating or adding to a monopoly, you can see at once that what we 
had done would be to make the financial conditions very much 
worse than they are now; and therefore, it seems to me, we ought 
to know how the President and the Department of Justice would 
feel about the question." He said, "Well, I think that is very 
forcible, and I see no objection to your going over there if you feel 
like it." I said, ''I certainly would not be in favor of considering 
this without going over there." 

I then telephoned Mr. Frick, a member of our finance committee. 
I think Mr. Ream and some others were out of the city that day, 
although I am very sure Mr. Ream and most, if not all, of the 
members of the committee attended subsequent days when we held 
various meetings to consider these questions. I telephoned Mr. 
Frick and asked him to come to the library, which he did imme- 
diately. It seems to me it was early in the morning, and, as I re- 
member, the report from his house was that he was out riding. But 
I left word for him to come to the library as soon as he returned, 
and he did so within a comparatively short time. He came to the 
library, and I stated to him briefly the situation and asked him if 
we should consider this question, if he would go with me to Wash- 
ington, and he said the first question to consider was whether we 
would consider the purchase of this property. He had spoken 
against this a good many times, and he was opposed to it. He did 
not think he wanted to purchase it. He made the statement that 
he did not think it was worth more than what I said I thought it 
was worth. I had said to Mr. Ledyard that, in my opinion, the 
stock was not worth over 65 ; and I believe Mr. Ledyard will corrob- 
orate that. Mr. Frick expressed about the same opinion. He 
was very much opposed to it, and not until after I had gone over 
the subject with him carefully, and he had approached Mr. Morgan 
and Mr. Morgan had told him — he and I had gone to Mr. Morgan's 
room — how he felt about the panic, did he give any encouragement 
whatever in regard to his opinion and his influence. Finally, how- 
ever, he said he would like to think it over. In the meantime, I 
think, I had telephoned the secretary of the company to come to 
the library, and I asked him to telephone the members of the finance 
committee and secure a meeting at the library of the finance com- 
mittee as soon as possible, and they came there very soon. This 



294 Industrial Combinations and Trusts 

whole subject matter was gone over very carefully by me, and I 
think Mr. Frick offered the resolution — I would like to tell you 
what resolution was passed at that first meeting. Remember, it 
had been represented that Mr. Schley had on deposit as collateral 
security toward the payment of his loans only about six milUons 
of the stock of the Tennessee Coal & Iron Co. I think he said 
then five or six millions. I thought the resolution on its face stated 
what we decided upon, but it does not; it provides that on Novem- 
ber 3 the whole subject matter be reported to the chairman, with 
power. 

But it was understood that we would offer to loan Mr. Schley 
either five or six million dollars in cash, taking the Tennessee Coal 
& Iron Co. stock as collateral security for the repayment of that 
loan; and if that failed to satisfy his wants, that, then, we would 
buy the stock on the basis of paying 90 for it in bonds of the United 
States Steel Corporation. I went back to Mr. Ledyard and made a 
proposition to make this loan to Schley. He talked with Schley, 
and made answer that that would not do at all; they could not get 
along with that; that Mr. Payne himself had offered to loan Mr. 
Schley, I think, a milHon dollars; someone else had offered to loan 
a million dollars; and someone else, or others, a million dollars. 
So that, as I remember, there were about $3,000,000 additional, 
which would provide in cash to Moore & Schley about eight or nine 
million dollars. But that Schley said that would not do at all, and 
he could not possibly get through. Mr. Frick himself, then, as I 
remember, had a conversation with Schley and tried to urge him to 
accept this loan, saying we did not want the stock and did not be- 
lieve in its represented value; did not believe it was worth over 60 
or 65 at the outside. Mr. Schley told Mr. Frick, as I remember, 
that he could not get along with that loan; that he must sell this 
stock; that there were various reasons why that was the only way 
he could possibly keep the firm from bankruptcy. Mr. Schley was 
represented by an attorney, Mr. Thatcher, of Simpson, Barnum 
& Thatcher, who was his counsel, Mr. Ledyard representing Mr. 
Payne, but trying to help Mr. Schley because Mr. Schley was in- 
indebted to Mr. Payne; and, if I am not mistaken — I would not 
like to do anybody an injustice — if Mr. Thatcher should be sub- 
poenaed and would have the right, from a professional standpoint, 
to state it — I am not sure about that — I believe he would say 
that an assignment had been prepared for either Moore & Schley 
or Mr. Schley. 



Absorption of the Tennessee Railroad Company 295 

Mr. LiNDABURY. An assignment for the benefit of creditors? 

Mr. Gary. For the benefit of creditors. 

Mr. Littleton. That is, Mr. John Thatcher? 

Mr. Gary. Mr. Tom Thatcher. 

Mr. Littleton. Do you think Mr. Schley would permit Mr. 
Thatcher to tell that? 

Mr. Gary. That I do not know. 

Mr. Littleton. Of course the privilege lies with Mr. Schley. 

Mr. Gary. I understand Mr. Schley has said since — I do not 
know, but he testified — that he could have got through this panic 
all right. Anybody who say ^ him at that time and heard him talk 
would not think he believed he could get through at that time. 

Mr. LiNDABURY. I want to say that Mr. Schley is a neighbor of 
mine in the country, and he is a pretty sick man just now. I do not 
believe he ought to be approached from what I hear. 

Mr. Littleton. We have his testimony on the subject in another 
hearing. 

Mr. Gary. Thereupon I began to talk to Mr. Ledyard about the 
purchase of this stock on the basis of 90, and, as I remember, he and 
I finally agreed, subject to the objection which might possibly be 
made in Washington, in the way and for the reasons I have hereto- 
fore suggested. As I remember, Mr. Ledyard or Mr. Schley, rep- 
resented by Mr. Thatcher, but communicating through Mr. Led- 
yard, agreed to take 90 for the stock and take his pay in bonds. 

Mr. Littleton. At that point did you or Mr. Ledyard or Mr. 
Thatcher or any of you believe that the President or Attorney General 
had any right to indorse this transaction? 

Mr. Gary. / was clearly of the opinion that he did not,^ and later 
I will be very glad to tell you how that question came up and what 
took place, because I feel certain now that every one connected in 
any way will agree that the exact facts and all the facts should be 
made known, and I do not know that there has ever been any other 
opinion held by anyone. 

I have stated that we offered, under the conditions and subject to 
the conditions mentioned, to pay for this stock in the bonds of the 
United States Steel Corporation. They were then quoted at about 
84, which, by comparison with other stocks in the market, was 
pretty high, notwithstanding it was a very low price for those bonds, 
which had sold, and should have sold, and did soon after sell, for 
better than par. But they were considered the best kind of security, 

1 Thus in original— Ed. 2 italics are the editor's. 



296 Industrial Combinations and Trusts 

and they were more salable, in my opinion, in large amounts than 
anything else on the market, any other kind of bonds or stocks, 
strange as it may seem. There was a great market for those bonds, 
and after this trade was made millions and miUions of them sold, 
commencing at about 84 and not going down below about 78 or 79, as 
I remember. The United States Steel Corporation interests had, 
in different banks scattered throughout the country, about $75,000,- 
000, and we would have been pleased to pay for this stock in cash 
rather than pay for it in our bonds at 84, except for the fact that 
we could not do that without disturbing the financial conditions 
of the country, disturbing the financial conditions of these banks, 
respectively, where our money was deposited. I was receiving 
requests from Pittsburg banks to withdraw our money in other 
localities and put more money in the banks of Pittsburg; also the 
same request from Chicago, the same request from other cities, 
and requests from New York banks to bring more money in from 
other cities to New York, as that was the seat of the greatest trouble, 
the seat of the whole trouble, I was afraid to disturb these banking 
conditions and relations by the withdrawal of money. 

Mr. Littleton. How much would it have withdrawn, about? 

Mr. Gary. It would have withdrawn twenty-five or more million 
dollars. We could not have withdrawn from any bank anywhere 
at that time $5,000,000 without creating a very great disturbance, 
the final result of which no man at that time could measure or 
possibly form any adequate notion of. If I had been disposed to 
take advantage of the financial conditions to make money, with 
this large deposit in the different banks, with these great resources, 
I could have bought securities — that is, bonds of all sorts and de- 
scriptions in the market, which had gone down to a comparatively 
low price. There was every opportunity for anyone w^ho had 
cash resources to make money. But certainly there was no such 
disposition on the part of the United States Steel Corporation, or 
anyone connected with it, and therefore we proposed to pay for 
the Tennessee Coal & Iron stock in the bonds of the United States 
Steel Corporation, which were in our treasury, and which were as 
good as cash — which could be sold in the market and which would 
be received by any of the banks as collateral security in the place 
of the Tennessee Coal & Iron stock or any other stock. 

I say that Mr. Ledyard and I agreed upon the price of 90. He 
came back to me, it seems to me, the next day — some time subse- 
quently — and said he was told by Mr. Schley and his counsel that 



Absorption of the Tennessee Railroad Company 297 

the price of 90 would not possibly let Messrs. Moore & Schley, or 
Mr. Schley out; they could not get along with that. I notice, in 
reading the testimony of Mr. Gates, that he says he got home and 
he made them raise the purchase price of securities. But the whole 
transaction was closed before Mr. Gates's return from Europe— 
before he arrived in New York, and if he made that statement he 
must have made it by Marconi, and certainly it was not communi- 
cated to us. The reason given to us, and the only reason, for pro- 
posing to increase the purchase price was that the stock at 90 
was not sufficient to allow the firm of Moore & Schley to pull 
through. 

I went back to our finance committee and represented those 
facts, and we had another meeting on November 4 and another 
resolution was passed, again referring the whole subject matter 
to the chairman with power; and I returned to Mr. Ledyard and 
agreed to raise the price from 90 to 100 in order to allow Moore 
& Schley to pull through. My bargaining was all with Mr. Ledyard ; 
the negotiations were entirely between Mr. Ledyard and me, as 
I remember. Mr. Morgan certainly did not participate in any 
respect nor attempt to influence anybody to buy or sell. I do not 
hold any brief for Mr. Morgan, but I mention that in connection 
with some of the published and sensational statements which have 
undoubtedly been based on misinformation. 

Mr. Gardner. I would just like to understand. Your first 
agreement was to buy the stock at 90 per cent of its face value — 
the securities? 

Mr. Gary. Yes; and pay for it in bonds at 84. 

Mr. Gardner. And pay for it in bonds at 84 ; that is to say, you 
paid $72 on the hundred? 

Mr. Gary. I have not made the figures; but afterwards I agreed 
to pay par for the Tennessee stock in bonds at 84. That, in other 
words, would be paying about 119 for the Tennessee stock, on the 
assumption that the bonds were worth par. 

Mr. Gardner. In other words, you paid out $840 for $900 worth 
of their securities, or did you pay $100? 

Mr. Gary, $840 for a thousand, par value, of their securities was 
the final trade. 

Mr. Gardner. That is what I want to get at. 

Mr. Gary. No; it is the other way. I was mistaken. 

Mr. Gardner. What I want to get at is this: Were you going to 
pay them $100 for $100 worth of their securities, only you happened 



298 Industrial Combinations and Trusts 

to settle, for convenience, in bonds at 84, or were you going to pay 
$84 for $100 worth of securities? 

Mr. Gary. Your first statement is right. 

Mr. Gardner. Then let me ask you, just to clear my own mind 
on the subject — ^because I have only gone on the committee to-day — 
you said that Col. Payne offered to lend a million dollars originally? 

Mr. Gary. I was so informed. You get all those facts from Com- 
modore Ledyard. 

Mr. Gardner. I want to follow you; that did not show, ap- 
parently, as a drop in the bucket; that that was followed by a 
proposition from you to lend $6,000,000, or thereabouts? 

Mr. Gary. They all came in together. Commodore Ledyard 
said Mr. Payne would provide a milUon dollars, and other parties, 
I remember, about two millions more, and then we offered to add 
to that a loan of five or six million dollars. 

Mr. Gardner. In addition to the three? 

Mr. Gary. Yes, sir. 

Mr. Gardner. That brings it up to nine millions? 

Mr. Gary. Eight or nine millions. 

Mr. Gardner. But that would not let Messrs. Moore & Schley 
out of their difficulty. Then, the next proposition, as I under- 
stand, was 90 per cent of the face value of their securities; that was 
$25,000,000, or thereabouts? 

Mr. Gary. I think so. 

Mr. Gardner. And that would not let Moore & Schley out of 
their difficulties? 

Mr. Gary. That is right. 

Mr. Gardner. Finally you paid over $30,000,000, and that did 
not let them out. Now, what I want to get at is. What were Moore 
& Schley's obligations that required such an enormous difference 
as between the original proposition of Col. Payne and what finally 
was furnished? 

Mr. Gary. These obligations which were paid for by the United 
States Steel Corporation were not all the obligations of Moore & 
Schley. They did have obligations in the bank, as I understood, 
of between thirty and forty million dollars. 

Mr. Gardner. Thirty or forty millions of dollars was about the 
selhng price of the securities? 

Mr. Gary. They had borrowed thirty or forty. 

Mr. Gardner. But they had against that the Tennessee Coal & 
Iron stock, which was worth something? 



Absorption of the Tennessee Railroad Company 299 

Mr. Gary. And various other stocks. I do not know the details 
of those loans. But here is a thing I would like to have you get 
in your mind; it is important: Most of the gentlemen who were 
participants in this syndicate, so-called, who were wealthy men — 
many of them, at least — were not obligated at all on the Moore & 
Schley loans; but, as I understood it, and as I believed from their 
acts at the time, they were very glad to turn in their stock, which 
they owned at these prices which were agreed upon. But just how 
much of the bonds which we turned over were needed by Moore & 
Schley to take care of themselves we were never informed. 

Mr. Gardner. Here is what I want to get at. You said you and 
Mr. Frick decided that the stock was worth from 60 to 65, in your 
opinion. 

Mr. Gary. Not more than that. 

Mr. Gardner. That is all you cared to pay for it, ordinarily? 

Mr. Gary. Yes. 

Mr. Gardner. But on account of Mr. Morgan's representation 
to you that if Moore & Schley failed it would be followed by a 
financial panic whose size could not be measured, you finally gave 
them 100 for that which you thought, only as a business venture 
taken by itself, to be worth only $65; in other words, that you 
came to the rescue of Moore & Schley to the extent of over 
$30,000,000? 

Mr, Gary. Not over 30,000,000. 

Mr. Gardner. Why not? 

Mr. Gary. You mean the total? 

Mr. Gardner. You gave them in bonds, which were convertible 
into cash, somewhere from 79 to 84 of its face value; you gave them 
$30,000,000. That is, what they could use as cash. That is what I 
want to get into my mind, whether that great amount of money 
was necessary to avert this calamity which was impending, in view 
of the fact that a large number of holders in the pool of Moore & 
Schley were men whose interest it was obviously to share with you 
that cost of averting a panic? 

Mr. Gary. I do not know the figures with respect to the indebted- 
ness of Moore & Schley, which was secured by this stock; nor do I 
know how many other mem.bers of the syndicate owed and had put 
up that stock. Mr. Schley, in his testimony, refers to the fact that a 
good deal of it was up. I do not know how much, and we never 
had those figures. What we did know, or what we were informed, 
was that eight or nine milHon dollars was not su£&cient, and we 



300 Industrial Combinations and Trusts 

were also told that there was no way of preventing this failure except 
by the purchase of the whole of the stock. 

Mr. Gardner. At loo per cent? 

Mr. Gary. At loo per cent. Now, I suspect that members of 
that syndicate who were not in debt said to Schley: "We have put 
this stock in your hands with an agreement that it shall not be 
sold by you unless sold at a profit, and it has cost us about no" — 
I think Schley said it stood him in at that — "and we will not allow 
you to sell your interest in that syndicate unless at the same time 
you put ours in at the same price and give us a chance." That is 
what I suspect; I do not know that. But I do know those were 
rich men, some of them. 

Mr. Gardner. You found a situation in which Mr. Morgan 
said: "I do not know whether you can buy this or whether you can 
buy that, but here is the fact, unless Moore & Schley have the 
money they say they must have " — which ultimately turns out to be 
$30,000,000, or its equivalent — "they are going to the wall, which 
means general ruin." Ordinarily a man would say to himself: 
"Of course, it will ruin the United States Steel Corporation as well 
as it will other people if there is a panic, and are there not some 
people around who can share this loss we are going to stand in, 
because we are paying 100 for that which we think is worth only 
65?" You would naturally have looked around to see if there was 
not somebody who had to pay his share to pull Moore & Schley 
out of the hole. Was there somebody else, or did the whole burden 
come on the United States Steel Corporation? 

Mr. Gary. It did finally, and would under any circumstances, 
except to the extent of about $3,000,000, as I understand. 

Mr. Gardner. Some of those names there that were read off as 
holding 10,300 shares seem to me hke persons with whom Mr. Mor- 
gan should have influence. 

Mr. Gary. Wliich one, for instance? 

Mr. Gardner. Oakleigh Thorne. 

Mr. Gary. I do not think he would have very much influence. 
What other one? There may be some one on there, but I do not 
think there was anyone there that Mr. Morgan would have a par- 
ticular influence over. 

The Chairman. Mr. John W. Gates? [Laughter.] In that con- 
nection, Judge, while they are waiting, are you willing to-day to 
dispose of that property for what you paid for it? 

Mr. Gary. That is a very pertinent question, and I would like to 



Absorption or the Tennessee Railroad Company 301 

answer that in just a minute. I just want to add, in answer to Mr. 
Gardner's question, this suggestion. He has spoken of Mr. Morgan 
making these representations. There were several other leading 
bankers, whose names I do not now remember, all of whom were 
very much excited, and who made the same representations; that 
is, the representations which Mr. Morgan made, as I understood, 
were that if Moore & Schley failed, and these loans, therefore, in 
these various banks were put in a position where the clearing house 
could not approve them, then he could not answer for the results. 
That was the statement, and Mr. Morgan said, '' Now, Mr. Ledyard 
tells me that unless this stock is purchased Moore & Schley must 
fail. That is his opinion, and he has no doubt about it. Those 
are the facts. " 

Mr. Gardner. What I was tr3dng to get at was, why you did not 
have any partners in misery. 

Mr. Gary. I presume you have been in trouble before, when you 
have seen a large portion of the people surrounding the trouble run 
in all directions. Mr. Morgan is the one man who, on such occasions, 
will rise to the occasion and put his own money into the other banks 
or on the stock exchange or anywhere to prevent the panic or pre- 
vent trouble, and give the use of his name and his credit to help 
people who are in financial distress. He has done it over and over 
again, and on this occasion no doubt he risked many, many million 
dollars of his own money in order to try to avert the panic. But 
that is not true of all others. It is true, though, that on this occasion 
many of the leading bankers of New York gathered around Mr. Mor- 
gan, and with him became responsible for large sums of money. 
They were all obligated in many directions and in large sums, and 
these bankers believed from the representations which had been 
made to them that the United States Steel Corporation — or, at 
least, they hoped — could afford to buy this stock and help out 
the situation and finally recoup itself against loss. So that it may 
not be true, and I have not said that as a final result the United 
States Steel Corporation made a heavy loss. I would be glad to 
give you my opinion. 

Mr. Gardner. We do not expect you to make a loss, because 
the panic was terminated. But naturally you took your risk of a 
loss. What I want to get through my mind is, why you had alone 
to make a present to Moore & Schley — and that is what you did 
in paying 100 for that of which the market value was only 70 per 
cent — why you alone had to stand in the way of that thunderstorm. 



302 Industrial Combinations and Trusts 

Mr. Gar.y. Because there was no other customer for that stock; 
because if that stock had been put on the market the price, before 
it had been sold, would have gone down very much below 65, in 
my opinion. I believe that company w^ould have been in bank- 
ruptcy in a very short time if it had not had help. 

Mr. Gardner. Suppose you had adhered to your original offer of 
90? 

Mr. Gary. Then, perhaps, we would not have gotten the stock. 
Perhaps Moore & Schley would have made an assignment and 
precipitated all this trouble. If it w^as true, as represented, that 
the 90 would not let him out 

Mr. Gardner. How would he be better off by making an assign- 
ment? 

Mr. Gary. He would not be any better off; but the financial 
conditions would be very much w^orse off. 

Mr. Gardner. But I was thinking, what could his possible 
motive be in refusing that offer? 

Mr. Gary. He could not get through. 

Mr. Gardnter. If he would have to take less in the long run? 

Mr. Gary. If he would have had to. If he was going to fail, he 
might as well fail for an old sheep as a lamb. 

Mr. Gardner. He might as well pull other people down wdth 
him? 

Mr. Gary. I suppose there are still some Sampsons in the world. 
I do not know whether he might be of that disposition. 

Mr. LiNDABURY. He probably could not get his stock out of 
''hock." 

Mr. Gardnter. That is very likely. I want to get clearly in my 
mind why it was that the United States Steel Corporation paid 
100 finally for that which you had determined was worth only 65, 
and that you alone were the people doing it. I can perfectly under- 
stand that if you w^re the only people w^ho would do it, it might 
pay you very wtII to do it. 

Mr. Gary. That is the answer. 

Mr. Gardner. That you had exhausted all other possibihties? 

Mr. Gary. That is the answer. 

Mr. Littleton. Will you take up the thread of your story where 
you had it a moment ago? 

Mr. Gary. Very well. 

Mr. Littleton. You agreed to pay 100. 

Mr. Gary. I think that was Sunday night. We had a. meeting 



Absorption of the Tennessee Railroad Company 303 

of the finance committee as late as 11 o'clock, and maybe 12 o'clock, 
Sunday night. 

Mr. Young. Had you seen the President previous to that? 

Mr. Gary. No. I think it was about 10 o'clock when I called up 
the private secretary of the President and asked him to make an 
apointment for Mr. Frick and me to meet the President at the 
earliest practicable hour the next morning. He got in communica- 
tion with the President and said the President would see us at 10 
o'clock Monday morning, as I remember it. We held a meeting of 
the finance committee very late that night, and immediately after- 
ward Mr. Frick and I secured a special — an engine and a car — and 
went to Washington. We might have started later, considerably 
later, but we arrived in Washington, I think, about 8 o'clock, or if 
we arrived earlier we did not get up before about 8 o'clock. I sug- 
gested to Mr. Frick that, notwithstanding our appointment at 10 
o'clock, we had better go to the office of the President and endeavor 
to see the President before 10 o'clock. Mr. Morgan had said the 
conditions in New York were so critical he would like to know the 
opinion of Mr. Frick and myself at the very earliest moment. We 
went to the oflSce of the President and saw his secretary there, I 
think, at about 9 o'clock. I will not undertake to be strictly ac- 
curate as to the hour, but I think it was about 9 o'clock that we 
arrived at the oflice of the secretary. I briefly stated our business, 
and the secretary said the President was at breakfast; it was not his 
custom to come to his ofiice before 10 o'clock — I understood that 
was his rule — and he was not accustomed to seeing anyone until 
after he had had a chance to look at his mail. I asked him if he 
would go to the President where he was breakfasting and say to 
him that Mr. Frick and I were here; that we considered it very 
important to see him immediately, and ask him if he would make an 
exception. He returned with the President, and the President said 
at once, after hearing the story, that he would like to consult the 
Department of Justice. I think Mr. Bonaparte was out of the city. 
The President then directed that Secretary Root be requested to 
come to the office of the President immediately. I am not sure 
whether this interview was in the office or one of the rooms in the 
White House. That is not important, of course; I may be mistaken 
about that; I rather think it was in the White House. But, wher- 
ever we were, the President requested Mr. Root to come to where 
the President was immediately. Mr. Root appeared very soon 
after. The President then asked me to again state the case in 



304 Industrial Combinations and Trusts 

Mr. Root's presence, which I did. The result of that interview I im- 
mediately telephoned to New York. The secretary to the President 
had kept the telephone open. 
Mr, Littleton. Did the President ask Mr. Root his opinion on 

this question? 

Mr. Gary. He did. 

Mr. Littleton. As to the validity and legality of this? 

Mr. Gary. He did. There was no disagreement between us. 
Now, gentlemen of the committee, I have a record of the substance 
of what took place on that occasion, and I see no reason for not 
giving it to this committee. 

Mr. Littleton. We would like very much to have it. 

Mr. Gary. I have never been requested not to give it to the com- 
mittee nor requested to treat it as confidential. 

Mr. Young. When was this record made up, Mr. Gary? 

Mr. Gary. I will give you the dates. On November 7, 1907, two 
days after Mr. Frick and I visited the White House, I wrote to 
Secretary Root as follows : 

November 7, 1907. 

My Dear Mr. Secretary: At the recent interview at the White House be- 
tween the President, yourself, Mr. Frick, and myself, I stated, in substance, 
that our corporation had the opportunity of acquiring more than one-half of 
the capital stock of the Tennessee Coal, Iron & Railroad Co. at a price some- 
what in excess of what we believed to be its real value, and that it had been 
represented that if the purchase should be made it would be of great benefit 
to financial conditions, and would probably save from failure an important 
business concern; that under the circumstances Mr. Frick and I had decided 
to favor the proposed purchase of stock unless the President objected to the 
same. I further stated that the total productive capacity of our companies 
would not be materially increased by the ownership of the properties of the 
Tennessee Co., and, after the purchase, would probably not amount to more 
than 60 per cent of the total steel production in this country, which was about 
the percentage of our companies at the time of the organization of the United 
States Steel Corporation; that our policy was opposed to securing a monopoly in 
our fines or even a material increase of our relative capacity. I understood 
the President to say that while he would not and could not legally make any 
binding promise or agreement he did not hesitate to say from all the circum- 
stances as presented he certainly would not advise against the proposed pur- 
chase. 

If consistent will you kindly write me if the above statement is in accordance 
with your understanding and recollection? 

Sincerely, yours, E. H. Gary. 

Mr. Root responded as follows: 

November ii, 1907. 
My Dear Mr. GARYrlhaveyourletterof November 7. It fully agrees with 
my recollection of the interview to which you refer, in which you stated to the 



Absorption of the Tennessee Railroad Company 305 

President the circumstances under which the United States Steel Corporation 
had been asked to reheve the financial situation by purchasing a majority of 
the stock of the Tennessee Coal, Iron & Railroad Co. I have sent a copy of 
your letter, with this answer, to the President, with a recommendation that it 
be transmitted to the Department of Justice for filing there. 

Very sincerely, yours, Elihu Root. 

I received another letter from Mr. Root, as follows: 

November 20, 1907. 
Dear Mr. Gary: I inclose a copy of a letter which I have sent to the Presi- 
dent inclosing a copy of your letter of November 7, and a copy of the President's 
answer. You have a complete copy of what you will be able to find upon the 
files of the Department of Justice if any occasion arises. 

Very sincerely, yours, Elihu Root. 

Inclosed were the following copies. First, from Mr. Root to the 
President, dated November 11, 1907: 

Dear Mr. President: I transmit herewith a copy of a letter from Mr. E. H. 
Gary, president of the United States Steel Corporation, dated November 7, 
1907, received by me on the following day. You will perceive that it relates to 
the interview which Mr. Gary had with you last week regarding the purchase 
by his company of the capital stock of the Tennessee Coal, Iron & Railroad 
Co. I send also a copy of my answer to Mr. Gary, and recommend that these 
papers be sent to the Department of Justice and placed upon the files of that 
department. 

Very truly, yours, Elihu Root. 

A letter from the President to the Secretary of State: 

November 19, 1907. 
My Dear Mr. Secretary: I am in receipt of your letter of the nth instant 
and inclosures, and have forwarded them to the Attorney General to be placed 
on the files of the Department of Justice, together with a copy of this letter. 
Mr. Gary states the facts as I remember them. 

Very truly, yours, Theodore Roosevelt. 

Mr. Littleton. Is there any additional fact, outside of that 
contemporaneous record, which you remember. Judge Gary, of the 
events of that visit? 

Mr. Gary. I remember some of the conversation. I remember 
the Secretary of State saying to the President that of course he had 
no right to say that we could buy this property. The President said 
he understood that. He thought all we wished to know was what 
would be the disposition of the President and the Department of 
Justice in case we did buy, for the reason that if there was an objec- 
tion by the Government v/e would not accomplish the desired result. 

I remember the President saying he was glad to know that the 
percentage in production of the steel of this country of the United 



3o6 Industrial Combinations and Trusts 

States Steel Corporation was not greater and was even less than it 
was at the time of the organization of the company; that he felt, 
as I knew, that the question of monopolies in this country was a 
very serious one, but he said: 

In view of the fact that your percentage has not increased, but has decreased, 
and the further fact that all of us have an appreciation of the financial condi- 
tions in New York, I do not believe that anyone could justly criticize me for 
saying that I would not feel like objecting to the purchase under the circum- 
stances. 

Now, I know it is believed by the chairman of this committee, 
from statements which he has made, that Mr. Frick and I misrep- 
resented the facts to the President. Of course I regret that very 
much, and I am going to try to show to the committee, if I am 
permitted 

The Chairman (interposing). That you possibly misled him 
unintentionally? 

Mr. Gary. Of course I would not intentionally misrepresent your 
statement. 

The Chairman. The chairman did not mean to make that state- 
ment quite that bald. 

Mr. Gary. I want to satisfy the chairman and the committee, if 
I can, by the facts and figures, that we did not make any misrepre- 
sentation. I believe everyone connected with the United States 
Steel Corporation cares more for his conduct and his reputation and 
his character than he does in regard to the question of making or 
losing a few dollars. I want to satisfy you of that, if I can, by the 
facts and figures, which are undisputed. 

The Chairman. Since the gentleman has been free to mention the 
attitude of the chairman in the matter, I would like to say that the 
chairman is now sitting in a judicial capacity, notwithstanding the 
fact that he was the proponent of the resolution. The chairman 
will say to the gentleman that after a careful investigation of such 
information as was obtainable, such information being the sworn 
testimony and statement before the Committee on the Judiciary 
in the Senate of the United States, his opinions in that matter were 
predicated upon that sworn testimony as to the facts. His opinions 
as to the law were predicated upon such poor authority, if the 
gentleman so deems it, as the opinions of Senator Culberson, Senator 
Foraker, Senator Bacon, and the other jurists, who until this time 
I considered quite able men, who expressed themselves in terms 
equally as explicit as the chairman of this committee. The chair- 



Absorption of the Tennessee Railroad Company 307 

man regarded the absorption of the company, at that time a com- 
peting company, by the tacit approval of the President, with 
genuine grief and profound astonishment. 

Mr. Gary. I have always regretted that the full facts in regard to 
the acquisition of the stock of the Tennessee Coal & Iron Co. were 
not developed before the Judiciary Committee of the Senate, to 
which you have referred. 

Mr. Littleton. The only witnesses who testified on that occasion 
were Schley, Thorne, Perkins, and Herbert Knox Smith, so far as 
the record shows. Did you see the correspondence from the Presi- 
dent to the Attorney General that followed your visit? 

Mr. Gary. I have seen that many times; yes, sir; I saw it pub- 
lished. 

Mr. Littleton. I think it should go into the record at this time — 
the complete correspondence. 

(The letter from the President to the Attorney General, referred 
to by Mr. Littleton, follows:) 

The WmxE House, 
Washington, November 4, igoy. 

My Dear Mr. Attorney General: Judge E. H. Gary and Mr. H. H. Frick, 
on behalf of the steel corporation, have just called on me. They state that there 
is a certain business firm (the name of which I have not been told, but which 
is of real importance in New York business circles) which will undoubtedly 
fail this week if help is not given. Among its assets are a majority of the se- 
curities of the Tennessee Coal Co. Application has been urgently made to 
the steel corporation to purchase this stock as the only means of avoiding a 
failure. Judge Gary and Mr. Frick inform me that as a mere business trans- 
action they do not care to purchase the stock, and under ordinary circum- 
stances they would not consider purchasing the stock because but little benefit 
will come to the steel corporation from the purchase; that they are aware that 
the purchase will be used as a handle for attack upon them on the ground that 
they are striving to secure a monopoly of the business and prevent competi- 
tion — not that this would represent what could be honestly said, but what 
might be recklessly and untruthfully said. They further inform me that as a 
matter of fact the pohcy of the company has been to decHne to acquire more 
than 60 per cent of the steel properties, and that this purpose has been per- 
severed in for several years past, with the object of preventing these accusa- 
tions, and, as a matter of fact, their proportion of steel properties has slightly 
decreased, so that it is below this 60 per cent, and the acquisition of the prop- 
erty in question will not raise it above 60 per cent. But they feel that it is 
immensely to their interest, as to the interest of every responsible business 
man, to try to prevent a panic and general industrial smash up at this time, and 
that they are willing to go into this transaction, which they would not other- 
wise go into, because it seems the opinion of those best fitted to express judg- 
ment in New York that it will be an important factor in preventing a break 
that might be ruinous; and that this has been urged upon them by the com- 
bination of the most responsible bankers in New York who are now thus en- 



30S IXDUSTRIAL COMBINATIONS AND TRUSTS 

gaged in endeavoring to save the situation. But they asserted they did not 
wish to do this if I stated it ought not to be done. I answered that while of 
course I could not advise them to take the action proposed, I felt it no public 
duty of mine to interpose any objection. 

Sincerely, yours, Theodoee Roosevelt. 

Hon. Ch-Aiiles J. Box.\parte, 

Attorney Ge/ieral. 

Mr. Littleton. Did you or ^Ir. Frick tell the President what 
company was to be saved from failure? 

^Ir. G.a:r.y. I beheve not; I think not. 

^Ir. Littleton. On the question of the salvation of the company 
from failure let me ask this question: Moore & Schley could not 
have failed for a large amount of money unless the loans which 
they had in the banks were called, could they? It is not likely? 

Mr. Gary. I would not say that it was likely; of course, I do 
not know. 

[Mr. Littleton. Did anybody ascertain the number and amounts 
of the loans which they had in the banks at that time? 

^Ir. Gary. We endeavored to verify the statement of ^loore & 
Schley. I sent two representatives to their books who made an 
examination. I have attempted since I was subpoenaed to come 
before this committee to get the result of that examination. One 
of the gentlemen, and the one who was best informed in regard 
to the result, I could not find. I have forgotten his name, but it is 
not material. He has, I think, left the city. I could not find him. 
Mr. Joyce, the other one, has only a general recollection. He says 
that he remembers he reported to me that their loans were ver}- 
large, and that the securities were distributed throughout the 
different banks. 

Of course you know how the business of a broker is done. He 
buys stock for his chent, and his chent may deposit a margin in 
cash, and he takes the stock and goes to a bank and borrows money 
on the stock and puts that up as collateral. 

Mr. Littleton. Only a pledge? 

Islr. Gary. Only a pledge. 

Mr. Littleton. In order to make this transaction justifiable 
in the after\dew, whatever might have been the fore\'iew of it at 
that time, it was easy for you to have been deceived, unless you ac- 
tually knCiV the a7no2mt of money ivhich Moore a^ Schley owed, as 
to the dire necessity of purchasing this property? 

Mr. G-\RY. / would think so. I think we were deceived, whether 
intentionally or otherwise, in this respect. I believed at that time, 



Absorption of the Tennessee Railroad Company 309 

although I presume it was not so represented, that Moore b' Schley 
had a very much larger amount of the Tennessee Coal df Iron stock 
as collateral than I now believe, after seeing this syndicate arrange- 
ment, they had actually deposited, unless the stocks of many of these 
rich men were deposited on account of indebtedness by the members 
of this syndicate to Moore b' Schley. 

Mr. Littleton. Do you think the syndicate was enlarged when 
the prospect of the sale of the stock brightened? 

Mr. Gary. / do not know that it was at that time. I have an opin- 
ion, not justified by evidence, that when that syndicate was formed 
and that stock purchased there was a hope on the part of some that 
the stock could be sold to the United States Steel Corporation. I would 
not like to do anyone an injustice. That may not be true.^ 

Mr. Littleton. When you went to the President and met him 
and the Secretary of State, knowing, as you have stated, that if it 
were a violation of the law no absolution could be given by them, it 
amounted, did it not, to your obtaining the opinion of the President 
and Secretary of State as to whether it was a violation of law? 

Mr. Gary. I do not know that I would quite assent to that 
opinion. I did reach the conclusion that if we acquired those 
securities and there should afterwards be any proceeding of any sort 
on behalf of the Government against us to set aside or prevent the 
consummation of that purchase or do anything else it would be a 
great outrage. 

Mr. Littleton. And if any subsequent proceedings were taken 
against the company after this purchase were made under these 
circumstances the company would have rather a strong defense, 
would it not, in stating its position to the Government? 

Mr. Gary. I would think so, if Mr. Martin Littleton was defend- 
ing the case with his ability to express himself. 

Mr. Littleton. That is very complimentary, Judge, and I appre- 
ciate it. 

I notice in the letter of Mr. Bonaparte the following: 

On November 4, 1907, the President addressed to me a letter of which I 
inclose a copy. At the time of the visit to him by Messrs. Frick and Gary, to 
which reference is made in this letter, I was absent from Washington, but 
after the letter had been written and before it reached me I had a brief con- 
versation with the President in which I was informed, in substance, of the 
facts stated more in detail in the letter itself. In this conversation I advised 
the President that, so far as the Department of Justice was informed, no rea- 
son existed to believe that the United States Steel Corporation or its ofi5cers, 

1 All the preceding italics are the editor's. 



3IO Industrial Combinations and Trusts 

directors, or stockholders were subject to prosecution or civil action under 
the Sherman antitrust law, and that, supposing such to be the fact, the informa- 
tion conveyed to him by Messrs. Frick and Gary did not materially alter the 
existing situation. 

Were you familiar mth that letter? 

Mr. Gary. No ; I was not. That is from the Attorney General to 
the President? 

Mr. Littleton. I am wrong about that. It is a quotation by the 
Attorney General from another letter of his which was written to 
the President, and this is contained in a letter to the chairman of 
the Judiciary Committee of the United States Senate. 

Mr. Gary. I never had any knowledge or information. 

Mr. Littleton. He says: 

I added the statement in substance that, in my opinion, based upon certain 
decisions of the Supreme Court, and especially the Knight case (156 U. S., i), 
the transaction said by Messrs. Gary and Frick to be in contemplation would 
not in itself constitute an offense against the said law or furnish grounds for 
action by the Government to enjoin its consummation; but if this transaction 
had been preceded or should be followed by a series of others of like nature a 
materially different situation would be presented and the case would become, 
in some measure, analogous to those of the Standard Oil Co. and the Tobacco 
Trust and other combinations of the hke nature. In the same conversation 
the President asked my opinion as to the legal correctness of the attitude he 
(the President) had assumed in his conversation with the gentlemen in ques- 
tion, that attitude being, in substance, that while he had no right to advise 
them to take the course they proposed or make any suggestion to them in the 
premises, he was not called upon to interpose any objection, and I replied that, 
in my opinion, such course by the President was strictly appropriate under the 
law. 

Judge Gary, if you have had time enough to consider it, do you 
understand him to mean if it had been preceded by a similar trans- 
action or followed by a similar transaction? 

Mr. LiNDABURY. Once again, apologizing for making an objec- 
tion, might I suggest that Judge Gary's interpretation of Mr. Bona- 
parte's letter to the President would hardly be proper? 

Mr. Littleton. We have such abundant power to overrule the 
objection that I will withdraw the question. 

Mr. Gary. I do not think I quite finished the statement in 
regard to the examination of the purchase of these securities, 
although I have nearly done so. 

I returned to New York, and we entered an agreement for the 
purchase of the stock, or the properties through the stock, in the 
meantime having made as careful and full an examination as we 



Absorption of the Tennessee Railroad Company 311 

could in regard to the properties, such examination having com- 
menced almost from the very beginning of the negotiations or the 
request to purchase. 

I remember that Mr. Gates says in his testimony that he insisted 
that the board of directors pass a resolution that the minority stock- 
holders should have the right to turn in their stock at the same price. 
He may have insisted upon that. I have no recollection of his hav- 
ing done so. If he did, it would seem to me as rather forcing us to 
buy stock instead of forcing them to sell stock, but, be that as it 
may, the original memorandum of agreement provided that we 
would take the minority stock at the same price. That agreement 
was consummated before Mr. Gates returned from abroad — ^before 
he landed in this country — and so I am inclined to think that he is 
mistaken about that, so far as I am concerned. 

I would like at the proper time, and as you may desire, to state 
to you some of the values of these properties and the conditions of 
this company. 



CHAPTER XII 

TRUST METHODS 

NOTE 

A DISPROPORTIONALLY large share of space in this volume has been 

devoted to readings on the above subject. The editor has felt that 
this is a most vital question. It bears directly on the issue between 
Competition and Combination. It is the theory of the editor that 
the advantages of combination are to be found chiefly in certain 
methods and not in the frequently alleged economies of saving of 
cross freights, saving in advertising and in salesmen, superior 
managerial ability, etc. etc. It is a very serious question whether, 
should certain practices be prevented, the alleged natural tendency 
to combination would not vanish into thin air. 

The exhibits given need no comment. They are made up of 
excerpts drawn from Government investigations and from the 
briefs, petitions, indictments and other documents in the various 
suits brought by the Government under the Sherman Act. For 
the purpose of affording greater convenience of study they have 
been subdi\ided into a series of groups each under a particular 
heading. — Ed, 

GROUP I 

Exhibit i 



The Government alleges that; 

In September, 1910, defendants, in pursuance of their general 
purpose, through Company, of New Jersey, ac- 
quired the busmess of G. , who was engaged in the 

manufacture of machines designated and adapted for use in 

performing all the principal operations in the manufacture of 

and which can be performed by the aid and use of machinery. 

1 United States of America v. Co. Petition, In the 

Court of the United States for the District of , pp. 66-70. 

312 



Trust Methods 313 

For at least two years immediately preceding September, 1910, 

said had invented, and had taken out letters patent of the 

United States and of foreign countries covering the same, machines 
designed and adapted for performing all the principal operations in 

the manufacture of and . Among such machines, which 

are too numerous to be referred to specifically in this petition, were 

machines, — machines, and machines, 

machines, machines, and many others. On or about 

May I, 1 9 10, the said installed in the factory of G. 

Company, a corporation of New Jersey, issued capital 

$3,750,000, with its factory and principal offices at Boston, Mass., 

with a daily capacity of 17,000 of , a complete set of the 

machines so owned and controlled by him, the said being the 

owner or in control of a majority of the capital stock of the 

Company. For several years prior to the installation and use in 
the factory of the Company of the machines owned and con- 
trolled by G. , defendants, through Com- 
pany, of New Jersey, or some one or more of the corporations owned 
and controlled by them, had furnished and supplied all of the prin- 
cipal machines used in the factory of the Company in the 

manufacture of and . Upon the installation in said fac- 
tory of the machines owned and controlled by the officials 

of the Company caused the machines owned and controlled by 
defendants to be dismantled and removed and discontinued the 
payment of royalties on the same. 

Thereupon defendants instituted proceedings against G. 

Company in the Supreme Judicial Court of Massachusetts, 

in which Company, of New Jersey, was the party 

plaintiff, to enjoin the Company from using the machines 

which had been supplied to it by G. ; to enjoin said 

from supplying or furnishing to the Company other machines 

to be used in the place of machines owned and controlled by defend- 
ants, and to recover rents and royalties on defendants' machines 

during the period that 's machines had been used in the factory 

of the Company. This proceeding was never prosecuted to a 

final determination for the reasons hereinafter stated. 

G. had advertised extensively, through the public press 

and otherwise, for several months prior to September, 1910, the 
machines which he had invented for use in the manufacture of 

• and , and had solicited among manufacturers in 

various parts of the United States orders for the sale and lease of 



314 Industrial Combinations and Trusts 

such machines. , however, experienced difficulty in obtaining 

orders for his machines on account of the arbitrary, oppressive, 
unreasonable, and unlawful lease and license agreements, containing 

exclusive-use and provisions, hereinbefore mentioned and 

described, which defendants had theretofore required and 

manufacturers to sign, in order to obtain machines from defend- 
ants, and under which such manufacturers then held all of the 

essential machines necessary in the manufacture of and . 

However, a concerted effort was made by a number of prominent 

and manufacturers engaged in business in various States 

of the United States to acquire the inventions and machines owned 

and controlled by , or an interest therein. Among such 

and manufacturers who were so interested were , & 

Company, St. Louis, Mo.; Company, 

St. Louis, Mo. ; Company, St. Louis, Mo. ; Com- 
pany, St. Louis, Mo.; Company, Chicago, 111.; , 

& Company, Chicago, 111. ; and & Company, 

Boston, Mass. 
Representatives of the above companies on September 22, 1910, 

were in Boston, Mass., in conference with G. with a 

view to either purchasing an interest in his inventions and machines 
or to make some arrangement which would enable them to obtain 
machines for use in their factories, and thereby be relieved from 
the domination and control of defendants. Defendants, being 
advised of the purpose and intent of said and manufac- 
turers, and well knowing that if any arrangement were made be- 
tween them and G. whereby they could obtain for use in 

their factories machines not owned and controlled by defendants, 
such action would result in defendants' machines being dismantled 

and removed, as had been done in the factory of the Company, 

and that competition would be created in the sale, lease, and use 
of such machines, defendants, for the purpose of preventing such 
competition and to monopoHze trade and commerce in machin- 
ery, on or about September 23, 1910, entered into agreements 

with said whereby they acquired all the inventions, letters 

patent of the United States and of all foreign countries relating 
thereto, together with all machinery, mechanisms, tools, and 

devices owned and controlled by said , designed and adapted 

for use in the manufacture of and ; and defendants 

acquired also the holdings of the capital stock, which constituted 
a majority thereof, which the said owned and controlled in 



Trust Methods 315 

said G. Company. The issued capital stock of said 

G. Company is $3,750,000, of which defendants acquired 

$2,250,000. For the inventions, improvements, letters patent of 
the United States and foreign countries, machines, machinery, 
mechanisms, and devices designed and used in the manufacture of 

and , including the $2,250,000 of capital stock of said 

G. Company, defendants paid G. $6,000,000, 

part in cash and part in stock of defendant corporations. 

For the purpose of maintaining their monopoly, defendants re- 
quired and took from said covenants, in substance, that he 

should assign, transfer, set over, and deliver to defendants all inven- 
tions, improvements, letters patent of the United States and of 
foreign countries, applications for letters patent, and interest and 
rights therein, which he might make, own, or acquire, within 15 

years thereafter, relating to the manufacture of and , 

or to machinery, mechanisms, tools, or devices, processes, methods, 

or things intended or adapted for use in the manufacture of , 

or in the working or manipulation of leather, or relating to or 

of any description whatsoever, or to the manufacture 

thereof, together with any and all rights which the said might, 

within said period, by agreement or otherwise, acquire or take 
over, covering any such inventions, improvements, letters patent 
of the United States and of other countries, applications for letters 
patent, and interest and rights therein. 

Exhibit 2 

COMPANY ^ 



The Government alleges that; 

In December, 1902, I. and certain other persons were 

engaged in the promotion of a corporation which they intended 

should erect a factory at Menominee, Michigan, and 

manufacture , and were engaged in making contracts 

with farmers for to be delivered to said company; and 

they intended that said company should engage independently in 

interstate trade and commerce in . The 

Company, to prevent this proposed competition, entered into 

^ United States of America v. Company and others. Origi- 
nal Petition, In the Court of the United States for the District of 



-, pp. 111-112. 



3l6 IXDUSTRI.\L COMBIXATIOXS AND TrUSTS 

negotiations with said which resulted in its subscribing for 

30,000 shares of the capital stock of said proposed company, and 

in December, 1902, The Company, I. , 

and B. caused defendant Company to be 

incorporated, and thereupon The Company pur- 
chased 30,000 shares of its capital stock, which it has held and 
voted ever since, and through such stock has, in conjunction '^ith 
said , dominated and controlled said company. 

Exhibit 3 

general electric company^ 

The Government alleges that: 

On February 10, 1906, and thereafter, from time to time, con- 
tracts were entered into between the Siemens & Halske Aktienge- 
sellschaft, of Berhn, Germany, as vendor, and defendants. General 
Electric Company and National Electric Lamp Company, as the 
lamp companies, whereby said defendant lamp companies acquired 
the exclusive right to manufacture, use, and seU throughout the 
United States, its territories, possessions, and dependencies, 
''tantalum filament" incandescent electric lamps (excluding the 
manufacture of filaments therefor) under the patents, applications, 
and inventions of the said vendor, said defendant lamp companies 
in consideration therefor making a cash payment of 8250,000 (60 
per cent of which said sum was paid by defendant, General Electric 
Company, and 40 per cent by defendant, National Electric Lamp 
Company) and gi^dng a certain share of the profits on ''tantalum 
filament'"' lamps sold by said defendants in the United States, and 
bu}'ing from said Siemens Company all ''tantalum filaments" 
required by said defendants in the manufacture of all said lamps 
so sold. 

On August 17, 1906, defendant, General Electric Company made 
an agreement "^dth the Deutsche GasgluhHcht Aktiengesellschaft 
(Auer Gesellschaft) of Berlin, Germany, whereby it, said General 
Electric Company, secured an option from the said Auer Company 
covering the exclusive rights for the United States to the ''tungsten 
filament"' lamp, hereinbefore described, that might follow the 

^ United States of America v. General Electric Company and others. In 
the Circuit Court of the United States for the Northern District of Ohio, In 
Equity, pp. 27-30. 



Trust Methods 317 

applications and inventions, controlled by the said Auer Company, 
for a consideration of $100,000 in cash and certain per lamp pay- 
ments on account of such lamps as should thereafter be manufac- 
tured and sold by it in the United States. The defendant, General 
Electric Company, thereupon sold to defendant, National Electric 
Lamp Company, a 40 per cent undivided interest in said option 
on said applications and inventions so controlled by the said Auer 
Company. 

On April 19, 1909, defendant. General Electric Company, secured 
an option on the United States patents, applications, and inventions, 
owned and controlled on and before April 18, 1909, and thereafter 
to be owned and controlled at any time from said date to July i, 
1919, by Bergmann Elektricitats-Werke A. G. of Berlin, Germany, 
and Mr. Sigmund Bergmann, of Berlin, Germany, in or relating 
to, or to the manufacture of, incandescent electric lamps and fila- 
ments of whatever character, also the processes and machinery 
therefor, and other products, of the said Bergmann Company's 
or Mr. Sigmund Bergmann's incandescent Lamp factories. This 
option was exercised on May 10, 1909, and payments in considera- 
tion therefor aggregating $175,000 were made by defendant, General 
Electric Company; and the Bergmann Company and Mr. Sigmund 
Bergmann agreed to and did cease selling and delivering incandes- 
cent electric lamps to the United States and its possessions from and 
after May 10, 1909, and guaranteed that the number of such lamps 
sold and delivered in the United States and possessions prior to 
May 10, 1909, and subsequent to April 19, 1909, should not exceed 
200,000 lamps. At a later date, the exact date being to your 
petitioners unknown, defendant. National Electric Lamp Company, 
purchased a four-tenths undivided interest in the rights under this 
contract. This contract covered "tungsten filament" lamps and 
incandescent electric lamps of every character. 

The defendants. General Electric Company and National Elec- 
tric Lamp Company, having acquired the rights under the ap- 
plications and inventions of the said Auer Company and said 
Bergmann Company, thereupon proceeded to buy the applications 
and inventions of Internationale Wolfram Lampen Actiengesell- 
schaft (Just & Hanaman), Budapest, Hungaria, and Dr. Hanz 
Kuzel, of Baden, Vienna, Austria, and did on August 15, 1909, by 
contracts with the said Just & Hanaman and Kuzel, buy their said 
applications and inventions covering the "tungsten filament" 
lamp and secure control thereof for a consideration of $250,000 for 



3i8 Industrial Combinations and Trusts 

the Just & Hanaman applications and inventions and $240,000 for 
the Kuzel applications and inventions. The aforesaid applications 
and inventions and patents covering the '' tungsten filament" 
lamp, which were acquired, as aforesaid, by defendants. General 
Electric Company and National Electric Lamp Company, com- 
prised all the valuable appHcations and inventions covering said 
"tungsten filament" lamp known by said defendants. 

Exhibit 4 



The Government alleges that; 

The defendant, , and the other directors, officers, 

and agents of the said successive corporations, from time to time, 
during the above-named period, pursued the policy of acquiring 

new inventions for the purpose of eliminating such 

competition in its infancy and preventing prospective manufac- 
turers from engaging in the manufacture and sale of ; and 

said officers and directors and their agents, by intimidation, threats, 
and other means of duress, sought to prevent and did prevent other 
inventors from putting their inventions on the market, and by such 
wrongful and illegal acts prevented the organization and formation 
of competing concerns and hindered and prevented other persons, 

firms, and corporations from engaging in the business, 

and did thereby deprive the public of the benefit of such competi- 
tion. 

GROUP 2 

Exhibit i 

— company* 



The Government alleges that: 

The defendant, , and the other directors, mana- 
gers, officers, and agents of the said successive corporations have, 
from time to time, during said above-named period caused to 
be purchased and have purchased competing com- 

^ United States of America v. The Company. Petition, In 

Equity, No. 6802, In the Court of the United States for the Ju- 
dicial District of , Western Division, p. 22. 

2 Op. cit. U. S. V. Company, Petition, pp, 20-21. 



Trust Methods 319 

panics, but concealed the fact of such purchase and caused the 
same to be continued in business after such acquisition in pretended 
competition with the defendant company as independent com- 
panies, for the purpose of interfering with other manufacturers, 
dealers, and agents. Said directors, managers, and officers have 
employed special agents who were instructed and directed to falsely 
and fraudulently represent themselves to be engaged in the busi- 
ness of dealing in independent of and in competition 

with said successive corporations, for the purpose of deceiving 
such competitors, and of wrongfully acquiring information con- 
cerning their business. Said agents thereupon carried out such 
instructions and directions, and by means of such false representa- 
tions the said successive corporations did obtain valuable informa- 
tion relative to the business and financial aSairs of such competi- 
tors. Through the activity of such special men and by means of 
such false representations the said successive corporations did ob- 
tain valuable information concerning such competitors which en- 
abled such corporations to greatly injure them in their business, 
as a result of which such special men were enabled to and did nego- 
tiate with various manufacturers, dealers, and agents for the pur- 
chase of their property and business, and did by means of such unlaw- 
ful methods succeed in purchasing the property and business thereof, 
and thereby did eliminate, suppress, and destroy such competition. 

Exhibit 2 

COMPANY 1 



~ — - E. , PEDDLER, ONEONTA, N. Y.,AND TROY, N. Y. 

ONEONTA, N. Y. 

The Government alleges that: 

D F. G , who testified as a witness for the Government, 

decribed in detail the remarkable operations which he carried out 

under the instruction of T officials. (Vol. 5, pp. 2433-50.) 

His testimony is corroborated by correspondence and is in no way 
contradicted or explained by any witness for the defendants. 

G , who had previously been a driver for the 

1 Company of v. United States of America. Brief 

for the United States, In Court of the United States, Vol. 2., pp. 523- 

525, 529-530, 533-534, 538-539, 542-545, 553-554, 580-582. 



320 Industrial Combinations and Trusts 

T = Company, was approached at his home at night about 

March, 1899, by U 1 C , the T 's agent at Troy, N. Y., 

who informed him that N , the T 's manager at Albany, had 

some important work for him to do which must be kept entirely 

secret, even from G 's own family. At his instance G met 

H and also O , manager for the T at Binghamton, N. Y. 

They told him that the T had competition at Oneonta, N. Y., 

from the U — Company , which had got the bulk of the trade, 

and that they wanted to get it back; that for that purpose they 
wanted to get the storekeepers to fighting with one another. He 

was directed to go to the U Company at Binghamton, 

N. Y., and buy 25 barrels of oil and have it shipped to Worcester, 
from which place he was to reship it to Oneonta. The reason for 

this procedure was that if the U Company knew that he 

wanted to sell oil at Oneonta, where it was already doing business, 
it would not supply him. They directed him to sell this oil at 

Oneonta to consumers, putting the sign ''U oil" on his 

wagon, and to sell it at 8 cents a gallon, which was the same price 
he had to pay the U for it at Binghamton. 

H and O told G that he must not tell anyone for 

whom he was working, but must say that he was working for 
himself, and they suggested a false excuse which he might give the 

manager of the U Company when purchasing this oil. 

He was also directed how he should conduct correspondence with 
O . 

G followed out these instructions; put a wagon on the 

streets at Oneonta with a sign, "U " upon it, and sold the 

oil to consumers at 8 cents a gallon, which was the same as the 
wholesale price to retail dealers. The retail storekeepers had been 
selling at 10 cents a gallon. The result of the cut which he made 
was that the merchants got to cutting prices against him and then 
against one another, and finally sold oil at 2 cents a gallon, and one 
put out a sign, "Free oil; come and get your cans filled." 

G bought one other lot of oil, 15 barrels, from the U , but 

later, being unable to get any more U — — oil under instructions 

he got his oil directly from the T Company, though it 

was shipped in blank-head barrels, which were dark in color, while 

the T 's barrels were green. After this he did not display the 

sign"U oil." 

He was instructed by not to try to sell too much oil, as, 

of course, a loss was involved on every gallon sold. The object, as 



Trust Methods 321 

shown by the correspondence put in evidence, was to get and keep 
the storekeepers in conflict with one another on price cutting. 



COMPANY. 



C. H. N , who was employed in the oflSce of the T at 

Baltimore as stenographer and later as assistant to the manager, 

testified that in 1897 and 1898 C operated the F 

Company at Norfolk, Va., and elsewhere, as a bogus independent 

concern; that this company obtained its oil from the T , but 

held itself out to be independent, and its effort was to turn the 

business of real independents into T channels. The oil was 

shipped to C in blank-head barrels, that is, barrels with no 

name upon them, while the practice of the T was to place 

its name plainly upon all barrels to its regular trade. N says 

that C cut prices against the independent concerns and secured 

a large proportion of their business. (N , vol. — , pp. 2360-62.) 

D. H. G , who was the agent of the T Company 

at Norfolk at this time, testified regarding the circumstances under 

which the F Company started in business at Norfolk. 

(Vol. — , pp. 2211-12.) He said that there was at Norfolk at this 

time a peddler named K selling oil to consumers, that the 

business had become of considerable importance, and that K 

bought his supplies partly from the T . F. E. Q , who was 

in charge of the refined oil department of the Baltimore division, 
told G— — - that it was important not to let even their own cus- 
tomers get too large, and at his instance G tried to buy out 

K , but could not do so. G says that Q thereupon 

sent C to Norfolk to operate in the name of the F 

Company; that he was instructed to visit only K 's trade and 

not to visit the T 's customers, and that he carried out these 

instructions. He said that C failed to destroy K 's trade 

in this way and then made an offer for his business and bought him 
out, and continued to operate for some time as the F Com- 
pany. 

B COMPANY. 

About 1897 the T Company bought out the B- 



Company, which had a refinery at Marietta, Ohio. (Vol. 
— , p. 3337.) The refinery was closed; but it was doubtless because 

of its reputation as an independent establishment that the T- 

soon after selected, the name "B Refining Company" under 



322 Industrial Combinations and Trusts 

which to do a bogus independent business at Richmond, Va. 
There appears to be no practical connection between the two con- 
cerns. (Vol. — , pp. 2537-41.) 

C testified (vol. — , 2445-47) that in the latter part of 

1898, under the direction of Q , of the Baltimore ofl&ce, he went 

to Richmond to investigate the conditions there. He found that 
the special agent of the T , Mr. X , had caused dissatisfac- 
tion in the trade by employing colored drivers and by refusing to 
sell in less than 20-gallon lots (note that this is just what he says 
G did at Norfolk), and as a result of his prejudice the V 



Company, an independent concern, was doing "a right smart 

business." Q directed him to go to Richmond and operate 

under the name of the B Refining Company, for the purpose, 

C claimed, of waking up X and teaching him how to get 

the business. He admitted that after he had been operating the 

B Refining Company for some time the V did not have 

very much trade, and that the B had worked up a good business. 

In August, 1899, C , in the name of the B , bought out the 

V Company, with money furnished by the T . (Vol. 

— pp. 2549-52.) 

W WORKS. 

r Early in 1901 C was transferred to Baltimore, and operated 

there under the name of the W Works, continuing to do 

so until 1905. This concern was held out to be independent of the 

T . C himself admitted that his prices were below the 

T Company's regular market prices in Baltimore. (Vol. 

— , p. 2465.) There is no denial that the W Company 

was throughout controlled by the T . 

H , of the Red '' — " Company, testified (vol. — , pp. 

2320-1) that when the W started into business C at- 
tempted to hire away the wagon drivers of the Red " — "; 

that the W presented to customers as an argument to show 

that it was independent the fact that it cut the T 's prices, and 

on the other hand, claimed that the fact that the real independents 
did not cut the price was proof that they were controlled by the 

T . C also circulated in the trade the false report that 

the plants of the T and Red " — " companies were connected 

by underground pipes. 

N , who was then in the ofl&ce of the T , stated (vol. — , 

pp. 2374-75) that the T employed men to follow the wagons 



Trust Methods 323 

of the independent concerns in Baltimore, especially those of the 

D- — M Company, and get lists of their customers, which 

were turned over to C . 

Mr. Y , Baltimore manager of the D M Company, 

an independent concern, testified (vol. — , pp. 71-2) that during 

1904 the W attacked the D M Company's trade, 

cutting the price one-half cent a gallon; that the D M 

Company had to meet this price, whereupon the W went down 

a half cent farther, and so on, until finally the W Com- 
pany was selling at 6 cents; that the D M Company did 

not meet this price, but sold at 7 cents, and that the T 

Company's open price at the same time was 8 cents. Y said 

that he then went to the customers of the D M Company 

and told them that he could could ^ not go down any farther, but 
promised them that later, when the price would advance after the 
fight was over, he would make them a reduction on the then current 
price equal to that which C offered during the fight. 

S. testified that he was employed by C to work 

for the W Company in 1904 and 1905, driving a tank 

wagon; that C told him to go after the D M Com- 
pany's customers and offer a rebate of about one-half to three- 
fourths of a cent below the T 's market price; that he was 

instructed not to sell to the T 's trade except at the regular 

market price. He said C told him that the W Com- 
pany was not controlled by the T , but that he showed him a 

list of D M Company's customers and told him that he 

should not go to any trade in particular except' that of D M 

Company. (Vol. — , pp. 193-4.) 



WORKS. 



The E Company was organized as a corporation by the 

S. P. I Company of Savannah, Ga., about 1897 or 1898. The 

I Company had previously been engaged exclusively in the 

naval stores business, and had entered the petroleum business 

because the T was competing with it in naval stores. The 

E Company did business at Savannah, New Orleans, 

Mobile, Birmingham, and elsewhere. The T , according to 

the testimony of E. N. T ,who was then employed by the T , 

cut prices he^-vily against the E and finally, about 1899, bought 

1 Thus in th§ original,— Ed, 



324 Industrial Combinations and Trusts 

it out. Its name was changed to the E Works, and it 

was thereafter run by the T as a bogus independent concern, 

doing business in numerous places. ( , vol. — , pp. 2107-8; 

■ , vol. — , pp. 2279-80.) 



In the territoty of the Baltimore marketing di\'ision of the T- 



which covers the South Atlantic States, the E Works was 

operated under the supervdsion of C. W. C . C. H. N who 

was in the Baltimore office of the T up to about 1903, testified 

that the accounts of the E were kept in the books of the T 

in the name of C. W. C , agent; that C reported to the 

T Company; that about 1901 he began to extend the 

business to towns in the Carolinas, Virginia, and Maryland; that 

the E made a special effort at all competitive points to get 

business aw^ay from independent concerns; that it gave special 
commissions to distributing agents who had formerly handled 
independent goods, to get them to become its agents, and that it 
cut prices. 

N also said that while special efforts were made by the E 

to get trade from the independent companies, now and then, for 

effect only, it would take a customer from the T . (Vol. — , 

pp. 2363-4.) 

W. H. H , manager of the Red " — " Company, gave similar 

testimony. He said that the E took away from the Red " — " 

its agent at Columbia, S. C, Marion, N. C, Newton, N. C, Char- 
lottesville, Va., and Silver Spring, Md.; that it cut prices to take 
away the business from the Red " — ," and after it had secured the 
business it so managed matters as ultimately to turn it over to the 

T Company; and that it at all times held itself out to be 

independent. (Vol. — , pp. 2317-19.) 

The evidence shows clearly that the E was used particularly 

to get trade from the independent concerns. H. L. S , manager 

of the P Company, of Norfolk, Va., an independent 

concern, testified that his company was attacked by the T , first 

through the Delivery (hereafter referred to), 

which sold to consumers, and soon after also by the E 

Works, which sohcited the trade of retail dealers; that the E 

avoided the customers of the T and solicited only the dealers 

who bought from the P ; that it cut the prices, and in some 



Trust Methods 325 

cases would offer 5 gallons of — free on a purchase of 25 gallons; 

that the E tried to hire the driversof the P Company 

regardless of salary, telling them that a position with the E 

would be more permanent as the P would soon be off the streets; 

and that the E cut the price of against the P 

as much as ;^:^-^ per cent. . . . 

R 'S COMPANY, ATLANTA, GA. 

E. N. J testified that for some time prior to 1898 the L- 



Company and the R 's Company were independent 

concerns doing business at Atlanta; that the T so reduced the 

prices of that there was no profit; and that the L and the 

R 's companies were forced to sell out to the T , which 

thereafter operated the business under the name of the R 's — — 

Company as a bogus independent concern. (Vol. — , pp. 2094-99.) 

After the R 's company^ became a bogus independent 

concern under the control of the T , J was put in charge 

of it. He testified (vol. — , pp. 2099-2103) that he reported to 

E. C. M , cashier in the main office of the T of , at 

Cincinnati, Ohio; that these letters were sent to a post-office box 

which was not the regular box of the T Company; and 

that under instructions he held the R 's out to the trade as an 

independent company. 

BOGUS PEDDLING CONCERNS AT CLEVELAND. 

C. J. D testified (vol. — , pp. 3054-56) that about 1902, at 

which time he was in the independent business at Cleveland, 

the T operated some peddling wagons in Cleveland known as 

Z Line wagons, which were managed by a man named A , 

holding himself out as independent, and which sought the trade 
of peddlers who were purchasing independent oil. 



The reason why the peddling outfits were started by the T — — 
at Cleveland is evidently the fact, testified to by Castle (vol. — , 
pp. 3054, 3056), that there had been a very large number of peddlers 
operating in Cleveland, and the fact that there was a large volume 
of independent business there. Castle stated that as a result of 

the competition of the J Delivery and the Z Line 

^ Thus in the original. — Ed. 



326 Industrial Combinations and Trusts 

wagons wliich preceded it, the number of peddlers was reduced 

from about 250 to about 50. K seeks to explain the decline 

in the number of peddlers by the increasing consumption of natural 
gas at Cleveland (vol. — , pp. 1531-32) and gives some statistics 
of the number of natural gas meters in use; but he fails to give the 
only statistics which would really be significant, namely, the quan- 
tity of sold, of which he must have a very accurate record both 

for the T 's sales and for those of independent concerns. 



Exhibit 3 
e. i. du pont de nemours po^\t)er company ^ 

" Q. Do you know of the employment of a yellow dog company? 

A. I have been told that the Climax Co., and the New York 
Powder Co. — 

Q. What do you know about the yellow dog companies, if any- 
thing? 

A. May I ask a question? 

Q. Yes. 

A. If the president of the company told me, am I permitted to 
answer? 

Q. Yes. That is my judgment, unless the gentlemen differ ydih 
me. 

A. During the conversation with Mr. T. C. du Pont, the presi- 
dent, in which he was endeavoring to explain to me the objects of 
the trust, he told me that no one man could sell all the powder, or 
any other article, in any particular territory, and it was necessary 
for him, therefore, just like a little boy, to have a dog, to which he 
could whistle and call. 

Q. What kind of a dog? 

A. He termed it "a. yellow dog," and he explained to me that 
after I had exhausted all my resources, and those of the traveling 
men under my office, that if I was not able to regain the trade, that 
I was to whistle by writing a letter, and they would then send on a 
little yellow dog, which, at that time, in the high explosives busi- 
ness, was known as the ClimaxPowder Manufacturing Co., of Em- 

1 Testimony of F. J. Waddell. United States of America v. E. I. du Pont de 
Nemours and Company, In Circuit Court of the United States for the District 
of Delaware. Pet. Rec. Testimony, Vol. II, pp. 685-687. 



Trust Methods 327 

porium, and the New York Powder Co., of New York. But the 
trouble was to keep the little yellow dog away from the trade that 
was not molested. 

Q. Had you occasion to whistle for the little yellow dog? 

A. Yes, sir. 

Q. Did you do so? 

A. Yes, sir. 

Q. What occurred.! State what you did? 

A. If we met the prices, that meant the lowering of our prices 
on our brands; but the little yellow dog would come in, and we 
would say that we didn't recognize them at all, that their goods 
were of no account, and were of low grade, and all that kind of 
thing; so we didn't have to lower our prices to the adjoining trade; 
but the yellow dog got the business. 

Q. Would you sell for the yellow dog? 

A. No, sir. 

Q. To whom did they belong to, if you know, that is, the Climax 
Powder Co., and the New York Co.? 

A. To the trust. 

Q. To the trust? 

A. Yes, sir. 

Q. Was that the E. I. du Pont de Nemours Powder Co.? 

A. Yes, sir." 

Exhibit 4 

american tobacco company ^ 

The most important motive, however, for the continuance of 
separate corporate existence in the case of many concerns has been 
the desire of the Combination to keep its control secret. There is a 
strong feeUng among many dealers and consumers against "trusts" 
in general and the "Tobacco Trust" in particular. Independent 
manufacturers have extensively taken advantage of this feeling 
and have advertised their goods as "Independent," "Not made 
by a trust," and so forth. The attitude of the American Tobacco 
Company and its openly af&liated concerns in refusing to deal 
with labor organizations has also caused hostility among union 
laboring men, many of whom insist on buying "union-label" 

1 Thus in the original. — Ed. 

2 Report of the Commissioner of Corporations on the Tobacco Industry, 
Part I, pp. 20-21. 



328 Industrial Combinations and Trusts 

goods. Many independent manufacturers have availed themselves 
of the union-label sentiment to build up a trade. 

In order to overcome the effects of the antitrust sentiment and 
the union-label sentiment, and even to take advantage of them, 
the Tobacco Combination, particularly during 1903 and 1904, 
secretly acquired a controlling interest in numerous concerns 
which had been catering to customers who held those sentiments. 
Such concerns continued to operate under their former management 
and kept up a pretense of independence and of hostility to the 
Combination. Those which employed union labor continued to do 
so and advertised the union label. These secretly controlled con- 
cerns were, until the facts were disclosed by the Government, a 
powerful engine of warfare against the genuine independents and 
were looked upon by the latter as their worst enemy. 

Among the concerns of which control was thus secretly acquired 
and for a greater or less period secretly maintained by the American 
and Continental tobacco companies are the following: 

R. A. Patterson Tobacco Company, Richmond, Va. 

H. N. Martin & Co., Louisville, Ky. 

Queen City Tobacco Company, Cincinnati, Ohio. 

Pinkerton Tobacco Company, Zanesville, Ohio. 

F. F. Adams Tobacco Company, Milwaukee, Wis. 

Nail & Williams Tobacco Company, Louisville, Ky. 

Nashville Tobacco Works, Nashville, Tenn. 

F. R. Penn Tobacco Company, Reidsville, N. C. 

Wells- Whitehead Tobacco Company, Wilson, N. C. 

H. Bolander (Incorporated), Chicago, 111. 

D. H. Spencer & Sons (Incorporated), Martinsville, Va. 

Manufacturers Tobacco Company, Louisville, Ky. 

Michigan Tobacco Company, Detroit, Mich. 

B. Leidersdorf & Co., Milwaukee, Wis. 

R. P. Richardson, jr., & Co., (Incorporated), Reidsville, 

N. C. 
Standard Snuff Company, Nashville, Tenn. 
Liipfert-Scales Company, Winston-Salem, N. C. 
Craft Tobacco Company, New Orleans, La. 
Mellor & Rittenhouse Philadelphia, Pa. (licorice). 
Johnston Tin Foil and Metal Company, St. Louis, Mo. 

(tin-foil) 
J. S. Young Company, Baltimore, Md. (licorice). 



Trust Methods 329 

Exhibit 5 

international harvester company ^ 

The Government alleges that: 

In January, 1903, in pursuance of the general purpose of de- 
fendants, defendant. International Harvester Company, acquired, 
through purchase of all the capital stock of and subsequent convey- 
ance from D. M. Osborne & Co., a New York corporation, with a 
plant at Auburn, N. Y., engaged in interstate trade and commerce 
in harvesting machinery, twine, and tillage implements, and in 
manufacturing, selling, and distributing harvesting machinery, 
twine, and tillage implements throughout the United States in 
competition with it, all grantor's business of manufacturing and 
selling, dealing in and distributing harvesting machinery and twine 
as a going concern, all assets, property, and good will and the exclu- 
sive right to use the corporate name, paying therefor cash and five- 
year notes. The principal owners of the grantor company, long 
successfully engaged in manufacturing and selling harvesting ma- 
chinery, agreed with grantee to enter its service for a certain period 
in managing the business and property acquired and not otherwise 
or thereafter to engage in or carry on or become interested in the 
business of manufacturing or deaHng in harvesting machinery. 

After the five concerns had gone into the International Harvester 
Company, the Osborne Company remained by far the largest 
single manufacturer outside the combination. 

For two years defendant, International Harvester Company, 
concealed and denied its association with D. M. Osborne & Co., 
and operated the latter as an independent company. 

GROUP 3 

Exhibit i 

COMPANY 2 



The Government alleges that: 
From the year 1890, up to the present time, the said defendant, 
, and the other directors, managers, ofiicers, and 



^ United States of America v. International Harvester Company and Others. 
Petition in Equity, In the District Court of the United States for the District 
of Minnesota, pp. 25-27. This charge is admitted in Defendant's Answer to 
Petition, pp. 30-31. 

2 Op. cit. U, S, V. — ~ — — ™ Company. Petition, pp. 14-16. 



330 Industrial Combinations and Trusts 

agents of the said several successive corporations, conspiring and 
confederating together, have maintained a department of each and 
every of said successive corporations for the purpose of stifling and 
suppressing competition with them respectively. This department 
was sometimes called the "Competition department," at other 
times the ''Ways and means department," and at other times by 
various other names. It was composed of an active head, with 
other officers and departmental managers of the said several cor- 
porations. It employed a force of special men who were particu- 
larly instructed and directed to suppress and destroy the business of 
competitors engaged in interstate and foreign trade and com- 
merce, and to harass and discourage and force out of business 
such competitors who were either manufacturers, dealers, or 
agents. 

These special men were generally known as "knockout" men, and 
were employed for the special purpose of interfering with the negoti- 
ations of the contracts of sales of such competitors. The said de- 
partment also employed secret agents who were instructed and di- 
rected to spy upon the business of such competitors, to fraudulently 
obtain information as to their sales and shipments, and to report 
such information to said department, where it was used for the pur- 
pose of discouraging prospective purchasers of other s. 

Other secret spies and agents were from time to time employed 
by said department, with instructions to report the names of cus- 
tomers of such competitors, and to report other information, which 
was thereupon used by said department in blocking, and in secur- 
ing the rescinding, of contracts of sales by such competitors, and 
wrongfully interfering with their business. 

The said department, from time to time, wrongfully and secretly 
engaged the services of the employees of such competitors and in- 
structed and directed them to furnish to said department confiden- 
tial information concerning the business of such competitors; and 
such information, when so reported, was used by said department 
in unlawfully and fraudulently obstructing and suppressing such 
trade and commerce of such competitors. 

Such department, from time to time, sent out instructions to the 
agents of the said several successive corporations, advising and 

directing them how to manipulate competing , for the 

purpose of showing defects and for the purpose of discouraging 

users of such , and for the further purpose of having such 

users rescind their contracts of purchase. 



Trust Methods 331 

The said department also, from time to time, instructed and 
directed its agents to purchase information from agents and em- 
ployees of competing m^anufacturers and dealers relative to the 
business, plans, and customers of such competitors, and to pro- 
cure information from the employees of railroads, express com- 
panies, hotel companies, and others as to the plans and purposes of 

competitors and the shipments of their , and to report such 

information to said department, where it was used in obstruct- 
ing and suppressing such trade and commerce. 

All of such instructions and directions as above set forth were 
acted upon by such agents so receiving them, and the policy and 
plan of the defendants operating said successive corporations 
through said department was by such agents carried out. 

Exhibit 2 



The Government alleges that: 

It appears from the evidence that the T Company has 

a general statistical department with headquarters at , 

one of the chief functions of which is to keep accurate records of the 
volume of business done by competitors, and that the information 
regarding shipments and business of competitors, secured from 
railway sources, is all reported ultimately to this central office. 
The Government had much difficulty in securing from the officers 

of the T Company an admission even of the existence of 

this statistical department and of the fact that such records of the 
business of competitors were kept. Two or three witnesses who 

had charge at New York of the sales of the various marketing 

companies in different parts of the country admitted after much 
questioning that, from the central offices of those companies in 
other places, reports of competitive shipments were sent to them 
at New York ; but they at first denied knowledge as to what became 

of such reports after they had once examined them. ( , vol. — , 

pp. 670 et seq. ; , vol. — , p. 681.) Thus , who 

had charge of the sales in the territory until 1900, and 

later had charge of the sales in the territory of the Com- 
pany and the T of Iowa, admitted receiving such reports from 

all these territories, but claimed that they were destroyed from time 
to time, and that he had none except for a very recent period. He 

1 Op. cit. U. S. V. Company. for U. S. Vol. — -, pp. 589-91. 



332 Industrial Combinations and Trusts 

said nothing about their being turned over to the statistical depart- 
ment, as subsequently appeared to be the case. ( , vol. — , 

pp. 679-87.) 

Finally it was learned from the testimony of , the 

selUng agent at New York for the Company of Kentucky, 

that the reports of this character which he received from the 

of Kentucky were turned over to , who had charge of 

the statistical department at (vol. — , pp. 709-10.) The 

Government finally found that , under , was then in 

charge of this statistical department. He w^as called as a mtness, 
and admitted that such reports of competitive shipments were 
turned over to his office, and that from them he compiled general 
statistics showing the volume of competitive sales in each general 

marketing territory of the T Company, and also in its 

smaller subdivisions, and in the principal towns throughout the 
United States. ( , vol. — , pp. 829-32.) 

The Government secured from 's office, and introduced in 

evidence, copies and extracts from these records showing the vol- 
ume of competitive business. (Petitioner's Exhibits 387-90, vol. — .) 
It also procured from the various sales agents having their head- 
quarters at namely, , representing the of Iowa 

and the Company; , representing the of Ken- 
tucky; , representing the of Indiana; , representing 

the Company; and , representing the of New 

Jersey — the current reports received by them from their several 
companies showing individual shipments of competitors, and also 
summaries thereof showing the total competitive business for cer- 
tain recent periods of time. Copies and extracts of some of these 
records were put into evidence, and constitute Petitioner's Exhibits 
313, 319, 329, 341, 342, 343, 344, 353, 354, and 355 (vol. — ). To 
illustrate the form of these reports of competitive shipments, we call 
attention to Petitioner's Exhibit 313 (vol. — , p. 700), which is a 

list of shipments of — by competitors in the territory of the 

Company (Rocky Mountain States) during certain months 

of 1907. The first column (see , vol. — , pp. 687, 739) shows 

the date of the shipment; the second, the consignor; the third, the 
point of origin; the fourth, the consignee; the fifth, the point of 
destination; and the other columns the character and am^ount of 
in the shipment. 

Petitioner's Exhibits 387-390, which are the summarized records 
produced by , show how complete is the system of keeping 



Trust Methods 333 

track of competitive business. They cover every marketing terri- 
tory of the T— Company in the United States, showing the 

volume of business done in such territory by the T Com- 
pany the volume done by independent concerns, and the corre- 
sponding percentages. They also give similar figures for the smaller 
marketing districts in which the larger territories are divided, and 
likewise in many cases give separately figures for the main stations 
and for the substations under such main stations. We have already, 
in discussing the relation of the extent of competition to the prices 

charged by the T Company, presented these percentages 

of competitive business. 

and other sales agents who produced these papers testified 

that they did not know how this information regarding competitive 
shipments, which came to them from the head ofiices of the several 

companies, was originally procured by those offices. , vol. — , 

p. 671; , vol. — , p. 687; , vol. — , p. 709; , vol. — , 

pp. 758, 759; , vol. — , pp. 818-825.) None of them directly 

testiSSed that they knew that the reports did not come originally 

from railroad employees, though said he had been assured 

they did not. (Vol. — , p. 687.) In the Missouri case in 1906, how- 
ever, C. P. , general manager of the Company, 

practically admitted that that company got such information from 
railroad employees, and paid for it (vol. — , pp. 1109-11.) 

GROUP 4 

Exhibit i 
explosives trade * 

Q. I will ask you whether or not, if you know, there was any 
contest inaugurated against the King's Great Western Powder Co. 
by the associated companies, in which you took part and assisted? 

A. I was sent to Cincinnati by The Hazard Powder Co. by di- 
rection of R. L. Wheeler, the president, when a branch office was 
established, and he told me the chief part of my work would be the 
conducting of a fight against the King's Great Western Powder 
Co. Mr. Wheeler was then vice president, and not president, as 
I have just stated. 

^ Op. cit. U. S. V. E. I. dii Pont de Nemours and Company. Testimony of 
R. S. Waddell. Pet. Rec. Testimony, Vol. I, pp. 99 ff. The instance given here 
is taken from the period when the explosives trade was operating under a pooUng 
agreement and before the consoUdation into the present combination. — Ed. 



334 



IxDUSTRL\L Combinations and Trusts 



Q. WTiat did you do? 

A. I opened an office at Cincinnati. The price of rifle powder 
was then held at S6.25 per keg, less a rebate, or discount, to city 
trade, of 5 per cent, say $5.94 net. I opened the fight by reducing 
the price, on Mr. \Mieeler'3 instructions, to S5.80. I made as much 
trade as I could at that figure. 

Q. State whether, if you know, The Hazard Powder Co. had any 
trade in that locahty at that time at all? 

A. It had a very small trade throughout that section of the 
countr}'. 

Q. \\Tio made the first cut in price, if you know? 

A. The Hazard Powder Co. That was on rifle powder. There 
had been a fight in progress on blasting powder before that time; 
but the King Co. had only recently commenced the manufacture of 
rifle powder. 

Q. \Mio took the trade, if you know, on that price? 

A. The Hazard Co. took the most of the trade of the city; the 
merchants. 

Q. How was that cut met, if you know, by the King people, if 
at all? 

A. It was met, vvdthin a day or two, by Mr. John King himself, 
who came to the city and made a lower price. The price was see- 
sawed between us at about 10 cents per keg, every few days, until 
the price had gotten down to about S3. 7 5 or S4, when I was oilled 
to Xew York. 

Q. By whom? 

A. By the Hazard Powder Co., or the officers of The Hazard 
Powder Co. for a conference. 

Q. With what person there did you have a conference? 

A. R. L. Wlieeler, who was the acting head of the company, 
directing the business. 

Q. State what that conference was? 

A. We discussed the situation at Cincinnati. He expressed a 
desire to hold the trade, even though the price might go ver}^ much 
lower than we were then making, and asked my opinion as to the 
best means of doing this: and I recommended a plan that I thought 
would be effective. 

Q. Wliat, if anything, were you instructed to do? 

A. I had general instructions to make a price lower than any 
that had been quoted in the city, to the city trade in Cin- 
cinnati. 



Trust Methods 



335 



Mr. Graham: Will you state what the instructions were, instead 
of saying "I had general instructions?" 

Q. State the specific instructions received. By whom were they 
given? 

A. R. L. Wheeler. 
By Mr Graham: 

Q. What did he say? 

A. He instructed me to cut the price still, either lo or 15 cents 
a keg, with a guarantee to each customer to whom I gave the cut 
price that this should be 10 cents per keg lower than any price the 
King Powder Co. would make to them; and when the King Co. 
quoted a price to a customer — 
By Mr. Scarlet: 

Q. What, if anything, was done under that instruction? 

A. I carried them out exactly as they were given to me. 

Q. How low did the price go? 

A. The price, to the greater part of the trade, went as low as 
$2.25 per keg on rifle, although I made some sales at $2.15 and 
$2.10. 

Q. What was the price of powder outside of the territory in 
which this contest was going on, if you know? 

A. In the New England States, the Eastern Seaboard, the 
extreme Western States, the full list, $6.25, was maintained on 
rifle powder. \ 

Exhibit 2 



STANDARD OIL COMPANY 1 

Price of water-white illuminating oil and margins, on October i^, 
igo4, by specified towns throughout the United States.^ 

(cents per gallon.) 
North Atlantic States. 





Price. 


Margin. 


Per cent of 
competition. 


Maine: 

Portland 


11.50 
11.00 


2.34 
2.14 





New Hampshire: 

Nashua 


4-7 



1 Op. cit. Standard Oil Company v. U. S. Brief for U. S. vol. 2, pp. 432-436. 

2 Prices that indicate loss are merely printed in red ink in original. In fol- 
lowing tables minus signs are used. — Ed. 



2>i^ 



Industrial Combinations and Trusts 



(cents per gallon.) 
North Atlantic Status. —Continued. 



Vermont: 

Burlington . . 
Massachusetts: 

Boston 

Fall River... 

Springfield . . 

Worcester. . . 
Connecticut: 

Hartford 

New London . 
Rhode Island: 

Providence . , 
New York: 

Binghamton. 

Buffalo 

New York. . . 
Pennsylvania : 

Harrisburg . . 

Philadelphia. 

Pittsburg 

Delaware: 

Wilmington . 
New Jersey: 

Newark 

Trenton 

Jersey City. . 



Price. 



\Per cent of 







competition. 


lO.OO 


1.54 


I.O 


1 1. CO 


2.82 


II-3 


10.50 
8.00 
8.00 


2.15 

—.88 
.08 




21.7 

5-0 


9.00 
10.00 


.18 
1.61 


21.7 
28.9 


10.00 


1. 21 





9-50 

10.00 

10.98 


1. 00 
2.01 
2.31 


39-1 

10.4 
8.6 


10.50 
8.00 
8.50 


2.47 
.28 
•87 


10.3 

^17.6 

32.8 


8.50 


.27 


^6.5 


11.00 

9-50 
10.94 


2.60 

.83 

2-59 


18.6 

^12.4 

^7.5 



^ Includes city and its substations. 



(cents per gallon.) 
South Atlantic States. 





Price. 


Margin. 


Per cent of 
cofjipetition. 


Maryland and District of Columbia: 
Baltimore 


8.50 

10.00 

8.50 

9-So 

8.00 


.09 

1.70 

.18 

.68 

--.27 


16.S 


Frederick 


Washington, D. C 




Virginia: 

Norfolk 


29.6 
12.0 


Richmond 



- Petitioner's Exhibit 631 is in error in showing this as a profit. The exhibit 
from the records of the Standard Oil Company, petitioner's Exhibit 391, from 
which Exhibit 631 was compiled, shows it as a loss. 



Trust Methods 



337 



(cents per gallon.) 
South Atlantic States.— Continued. 



Virginia: 

Roanoke . . . 
West Virginia: 

Charleston . 

Wheeling. . . 
North Carolina: 

Wilmington 

Raleigh 

South Carolina: 

Columbia . . 
Georgia : 

Atlanta 

Savannah . . 
Florida: 

Jacksonville 

Tampa . . . , , 



Price. 


Margin. 


Per cent of 
competition. 


11.50 


2.29 




.... 


10.00 
9-50 


2.56 
1.66 





12.2 


11.00 
12.00 


1.99 
1.56 




I.I 


13.00 


2.27 







13.00 
12.50 


1.98 
2.48 






1-7 


13.00 
14.50 


3.10 
3-93 




3-9 



(cents per gallon.) 
North Central States. 



Ohio: 

Cincinnati. . . 

Cleveland . . . 

Columbus. . . . 
Indiana: 

Evansville. . . 

Indianapolis. . 

South Bend.. 
Illinois: 

Chicago 

Decatur 

Joliet 

Michigan: 

Detroit 

Calumet 

Grand Rapids 
Wisconsin: 

La Crosse . . . 

Milwaukee . . 

Eau Claire . . 
Minnesota: 

Duluth 



Price. 


Margin. 


7.00 


—1.09 


7.00 


.16 


9-So 


1.72 


9.00 


•05 


8.50 


.12 


10.00 


1.90 


8.50 


.56 


9-50 


.08 


9.00 


•73 


8.50 


.24 


12.25 


2.40 


9-50 


1. 14 


9.00 


.17 


8.50 


.65 


10.7s 


1.36 


8.50 


—.88 



Per cent of 
competition. 

45-3 
II. 7 

2.3 

29.0 

22.0 

o 

12.7 
12.9 
18.S 

17.6 

o 

38.6 
38.6 



9.9 



338 



Industrial Combinations and Trusts 



(cents per gallon.) 
North Central States. — Continued. 



Minnesota: 

Minneapolis 

Mankato 

Iowa: 

Clinton 

Cedar Falls 

Des Moines 

Missouri (not including Waters-Pierce Terri- 
tory) : 

Kansas City 

St. Joseph 

Kansas: 

Leavenworth 

Fort Scott 

Wichita 

Nebraska : 

Omaha 

Hastings 

Fremont 

North Dakota: 

Fargo 

South Dakota: 

Huron 

Sioux Falls 



Price. 



9-50 
11.50 

10.00 
12.25 
10.7s 



10.00 
11.00 

10.50 
12.00 
10.00 

10.00 
13.00 



13-50 

14.50 
12.00 



Margin. 



.24 
2.24 

.17 
2.10 

•53 



.27 
1.52 

.48 

1.98 

.48 

.41 
1.49 
1-45 

2.10 

2.27 
•35 



Per cent of 
competition. 



41.8 
o 



41.8 



24.2 
o 



32.1 
21.7 



(cents per gallon.) 
South Central States. 

(Exclusive of Waters-Pierce territory.) 



Price 




Per cent of 
competition. 



Kentucky: 

Louisville . . . 

Lexington. . . 

Paducah . . . . 
Tennessee : 

Chattanooga , 

Nashville . . . , 

Memphis. . . , 
Alabama : 

Birmingham. 

Selma 

Huntsville. . . 



13.00 
12.00 
10.50 

13.00 

14.00 
^3-50 



16.1 



o 

27.6 

11.6 



Trust Methods 



339 



(cents per gallon.) 
South Central States. — Continued. 



Mississippi: 

Jackson 

Louisiana: 

New Orleans . 

Baton Rouge 



Price. 



13-50 

9-50 
11.00 



Margin. 



—1-35 
.21 



Per cent of 
competition. 



51.2 



(cents per gallon.) 
Western States. 



Montana: 

Butte 

Wyoming: 

Cheyenne 

Colorado : 

Denver 

Leadville 

New Mexico: 

Albuquerque . . . 
Utah: 

Salt Lake City. 
Washington : 

Seattle 

Spokane 

Oregon: 

Portland 

California: 

Los Angeles . . . 

Oakland 

Sacramento . . . . 

San Francisco . . 



Price. 



23.00 

18.00 

16.00 
20.00 

23.00 

20.00 

15-50 
21.50 

15.00 

7-50 
12.50 
13.00 
12.00 



Margin. 



5.76 
4-32 

3-39 

5-47 

6.48 
4.09 

4-17 
6.10 

4.12 

-3.16 
2.46 
2.45 
1-73 



Per cent of 
competition. 



^0.8 

*o.6 

o 
o 

^7.0 

^o.S 

o 
o 



"33.4 
* 0.3 

o 

- 7.1 



^ Includes city and its substations. 

Exhibit 3 

COMPANY 1 

The Government alleges that: 

Mr. G A. G testified that immediately before the G s 

were ready to go into the business, in the latter part of 1899 or 

^ Op. cit. Company v, U. S, ■ for U. S. Vol. — , pp. 443-445. 



340 Industrial Combinations and Trusts 

early in 1900, the bottom dropped out of the prices at Albany and 
they practically did no business for about two years. (Vol. — , 
p. 1947.) His recollection is that the price went dov^n from 12 

cents to 6-J cents ultimately. Mr. T. L. G says that the T 

reduced the price to 6 cents or 6- J cents. Wlien the G s actually 

got started at Albany they sold oil as low as 7-J cents, but did 

not meet the low prices made by the T . (Vol. — , p. 1816.) 

The marked difference between the prices at Albany, where 
there was active competition, and the prices in other cities in New 
York is vividly shown in Petitioner's Exhibit 635, which compares 

the T 's prices of dehvered at Albany with the 

prices of the same grade of dehvered by wagons at New 

York City, month by month, from 1902 to 1906, and which also 
shows the margins of profit or loss. The price at New York ought 
normally to be lower than at Albany, as New York is at the very 

seat of the largest refineries of the T . The exhibit shows that 

from 1902 to 1904 the price at Albany was most of the time i cent 
per gallon lower than at New York; that in 1905 it was from i to 
3 cents lower than at New York; and that in 1906 it was for eight 
months 2.5 cents lower, and during the rest of that year 3 cents 
lower than at New^ York. The difference in the profit per gallon 
shown is about the same as the difference in the selHng price. In 

1902, during four months, the T was selhng at Albany, at a 

loss of 0.31 cent per gallon, while there was a profit in New York 
of from 0.54 to 0.79 cent. During most of 1905 the profit at Albany 
was 0.20 cent per gallon or less, and in two months there was a 
loss; while in the same months at New York there was a profit 
ranging from 2.09 cents to 2.84 cents. In the last four months of 
1906 there was a loss of 0.12 cent per gallon at Albany, and a profit 
of 2.74 cents per gallon at New York. 

X X , a storekeeper of Albany, testified that, after he 

had been buying oil from the G s, K , a salesman for the 

T , offered him a price one-half cent below the G s' price. 

This offer was made in a conversation in which K indicated 

the price for w^hich he would sell by raising up five fingers on 

one hand and then one finger and half on the other, indicating 6-| 

cents. This price was to be made by means of a rebate and X 

says that K told him that tickets w^ould be made out at the 

regular price and the amount of the cut returned to him subse- 
quently. ( , vol. — , pp. 1932-37.) 



Trust Methods 341 

K J called by the defendants (vol. — , pp. 737-43), admitted 

that he used his fingers as X had said, but claimed that in do- 
ing so he was simply trying to find out the price that X was 

pa)dng the G s. When the question was first put to him 

whether he had offered oil to X at a cut price he did not answer 

positively but said he could not remember. After being badgered by 
defendants' counsel he finally said he had made no such offer. An ex- 
amination of this witness's testimony in detail will satisfy the court 
that X 's version of the matter is correct, and not K 's. 

K B , a grocer at Albany, testified that after he had 

been buying from the G Brothers, the T 's tank-wagon 

driver, one Y , made him a proposition to sell him for six 

months at 2 cents a gallon less than the prevaiHng price, the 2 cents 

to be paid as a rebate; that the T afterwards refused to keep 

this agreement, and B deducted the amount of rebate to which 

he was entitled from a bill for candles which he owed the T , 

and the T never attempted to enforce collection of the amount 

so deducted. (Vol. — , pp. 1970-72.) 

Y , called by the defendants, said in substance that he had 

played a trick upon B , that he told him that he was going to 

give him for 2 cents below the market price, when, as a matter 

of fact, Y — — knew that the market price was to be reduced on 
the following day. (Vol. — , pp. 838-42.) 

GROUP 5 1 

Exhibit i 

credit agencies ^ 

The Government alleges that; 
Throughout the period from about 1904 to the present time, the 
financial credit and business standing and classification of 

^ In the various wholesale and retail dealers' associations the restraint of trade 
involved is somewhat different than that in other types of combinations. It 
resolves itself into three main objects; first, to prevent shipments from manu- 
facturers and wholesalers direct to consumers; second, to confine shipments 
from manufacturers and wholesalers to those who are regarded as legitimate 
retail dealers; third, to confine the trade of the retailer to his legitimate terri- 
tory. The manner and methods of accomplishing these three objects is through 
a more or less arbitrary system of classification. Failure to conform to ethical 
standards of business has led to attempts to force the recalcitrant into line by 
various methods. Cf. Chap. XII, Groups 6 and 7. — Ed. 

2 United States of America v. and others. Petition, In Equity, 

In the Court of the United States for the District of — — , pp. 34-36. 



342 Industrial Combinations and Trusts 

dealers is reported in certain credit books recognized by all 

dealers, including the defendants herein, as establishing the credit 
rating, business standing, and classification of said dealers for all 

the purposes of the trade. These said credit agencies are 

known to the trade as the "Blue Book" and the ''Red Book." 

The ''Blue Book" is owned and pubUshed at Missouri, by the 

Credit Manufacturers' Corporation, a corporation of 

the State of Virginia, the stock of which is owned or fully controlled 

by the Manufacturers' Association, which association 

is composed of fifteen or more of the largest manufacturers' asso- 
ciations throughout the United States. 

The "Red Book" is published at , Illinois, by the 's 

Credit Association, a corporation of the State of Illinois, and is 
similar in its form to the said "Blue Book," and is used for the 
same purpose. 

The ratings contained in said " Blue Book " and said "Red Book " 
are fixed by properly designated officers of the said Credit Manu- 
facturers' Corporation and said Credit Association, respectively, 
who have been for many years last past and now are in direct com- 
munication by correspondence with the defendants herein, 

, , and , relative to the fisting and 

standing of retafi dealers in various parts of the territory covered 

as aforesaid by the 's Association. During said period 

said officials of said credit agencies have sent advance printed 

proof sheets of new issues and corrections of said credit books to 

the defendant, , as well as to officials of other retail 

dealers' associations, and in pursuance to said conspiracy said 

— has ordered, directed and made various changes 

in said credit books by way of eliminating the names of dealers 
whose business did not conform to the standards of classffication 
arbitrarily adopted by the members of the said 's Asso- 
ciation as hereinbefore described; and in the said credit books or 
by special reports various dealers have, at the solicitation and 

instigation of said and others been designated as 

contractors, cooperative , mail-order houses to distinguish these 

from what is accepted by the members of said 's Asso- 
ciation as legitimate dealers entitled to purchase at 

wholesale prices. In the key to numbers shown in the said "Red 
Book" there appears as a part of the plan of arbitrary classffication 
as aforesaid the following: 

63. Regarded as consumers by retail association. 



Trust Methods 343 

In further pursuance to said conspiracy and combination during 
the period aforesaid, as was agreed between the publishers of said 

*'Red Book" and the secretary members of said , Bureau 

of Information that in consideration of being indemnified on ac- 
count of any possible damage suits, said publishers should list 

dealers, operators, contractors, and consumers, as aforesaid, in 
accordance with the classification fixed by said organized retail 
dealers' associations. 

The purpose and effect, well known and intended by defendants 
herein, in thus employing the said credit agencies to fix this arbi- 
trary classification of the trade, as aforesaid, has been to 

deprive the contractors and builders and the cooperative s and 

the mail-order houses and other consumers, as aforesaid, of the 
right to buy freely from manufacturers and wholesalers, as herein- 
before more particularly alleged. 

Exhibit 2 
report, committee on trade 
relations, dealer's association i 

, March i, i8gg. 

In making this report of the result of the first year's work of 
the committee on trade relations, we wish first to refer to the events 
which led up to the creation of this committee. In February, 1898, 

certain wholesale dealers in North -, realizing the great loss 

they were suffering, both in volume of trade and percentage of 
profits, caused by the competition of a class commonly known as 

scalpers, called for a general meeting of the 's Association 

to discuss the question. The result was the passage of a resolution 
condemning the business of the scalper and an agreement of all 
members present at the meeting not to sell to any scalper who was 
reported to be selling to a class of trade not legitimate. 

At the last annual meeting of this association at , a letter 

was received from the Trade Association, presented 

by Mr. J. . This letter, after referring to the losses occa- 
sioned both to the wholesale and retail dealers by scalpers, says: 
"The remedy for this evil, in our opinion, lies in concerted action 
by the retailer and wholesaler against the offenders, and to this end 

^ United States of America v. Dealers^ Association. Orig- 
inal Petition, In the Court of the United States for the District of 

— , Exhibit E, pp. 76-80. 



344 Industrial Combinations and Trusts 

we ask you to appoint a committee, with power to confer with this 
committee, to see that united action can be taken in the matter." 

The result was that by practically a unanimous vote the 

Dealers' Association established the committee on trade 



relations. 

Unavoidable delays prevented our holding our first meeting until 
the following July, at which time there developed the idea that the 
committee on trade relations was to act as a classification committee. 
Such a construction would positively have prevented this committee 
from doing anything toward the intended end, for it was readily 
seen that their work could only be successful by commencing after 
classification was decided. 

One of the greatest causes of friction between the wholesale and 
retail associations in the past has been the question of classification 
of the trade, each side taking the stand that to them belonged 
the right to classify. Evidently, then, no mutual work could be 
done until this difference was overcome by some agreement be- 
tween the Dealers' Association and the various 

retail organizations, which would provide for absolute final classi- 
fications wherever necessary. 

Our first meeting for this purpose was with the committee on 
wholesale selling consumers of the Trade Associa- 
tion, held in New York October ii. The result of this conference 

was the adoption by the Trade Association and 

the Dealers' Association of the following resolution: 

"Whenever a dispute as to the classification of any consumer 
is concerned the chairman of the committee on wholesale selling 

consumers of the Trade Association shall arrange 

for a joint arbitration between said association and the 

Dealers' Association by a committee consisting of one member 



of the Trade Association, to be appointed by the 

chairman of the committee on wholesale selling consumers, and 

one member of the — Dealers' Association, to be 

appointed by that association; and in the case of disagreement by 
this committee, a third member of said committee shall be decided 
upon by the two members already serving, and the decision of this 
committee shall be final concerning such classification, it being 

understood that concerns decided to be and shall never 

be held a legitimate customer for the wholesaler to sell." 

Up to the present time the Trade Association is 

the only retail organization that has positively agreed with our 



Trust Methods 345 

association for joint final classification, but our committee has 

negotiated with the 's Protective Association and 

the Dealers Association of , and are very much pleased 

to report that after a conference with the committee on trade re- 
lations of the Retail Association, in which plan of work 

as hereafter outlined was discussed, we received the following letter 
from them: 

, , February 5, i8gg. 

Chairman Committee on Trade Relations, 

Dealers^ Association. 

Dear Sir: It is a pleasant duty to inform you that our committee 
on trade relations agreed with you as to the urgent necessity of a 
movement by the combined — — trade, as discussed at our informal 

conference on the first instant. The association can 

assure you of their earnest cooperation to bring about the ends 
aimed for on the broad lines outlined by ourselves at the conference. 

I am with respect, very truly, 

, Secretary. 

Our work so far, therefore, has been to provide a plan for joint 
final classification. 

We have at all times realized that this was but the first step 
to be taken, and in all our conferences with representatives of the 
retail organizations we have discussed the next work necessary. 
Joint final classification is a good measure, as when adopted it re- 
moves the cause of friction in the past between the retail associa- 
tion and the Wholesale Association: But without further 

obligations on the wholesaler and retailers it cannot accomplish 
what we are seeking to attain. So the committee recommends that 

the Dealers' Association provide in its by-laws for 

the expulsion from membership of all members who sell the trade 
that is jointly classified as not legitimate trade for the wholesaler, 

and that in return for this action by the Dealers' 

Association all retail dealers^ associations provide- some measure to 
induce the members to buy their stock only from such wholesale dealers 
as are members in good standing of the Wholesale Association.^ 

A careful consideration of this plan we think will convince 
everyone that the possibilities for good results are large and only 
limited by the action of all in interest. The Wholesale Asso- 
ciation can not accomplish the desired result alone, nor can the 
retail association, nor is it probable that both together can entirely 
^ Italics are the editor's. 



346 Industrial Combinations and Trusts 

eliminate the competition of illegitimate operators. But if the 

wholesale interests not now members of the Association 

will join through the association in saying to the retail dealers, We 
will not sell to anyone who seeks to injure your proper business; 
and, if in return, the retail dealers will to as great an extent as 

practicable buy of the members of the Wholesale Association, 

it seems apparent that good results must follow. 

We have been met in this proposition many times by the state- 
ment. You can not get men, first, to promise to do what you ask, 
and next, after promising, to carry out their promises. In answer 
to this we have only to say, if that is so, then abolish your com- 
mittee on trade relations, abolish your wholesale and retail associ- 
ations, and let everyone go in and plunder each other to their full 

ability. But we do not beUeve that the large majority of 

dealers are so blind to their own interests or so weak in their de- 
termination as to come to such a conclusion, and so we have recom- 
mended to you a plan which we trust will open a discussion that 
will eventually result in a victory for proper business principles. 

If successful in the work so far outlined, there are other questions 

for the Wholesale Association to take up. The wholesalers 

to-day suffer a loss by the action of some manufacturers (who do not 

operate wholesale ) in selling direct to retailers a portion of 

their product, hy the action of some retailers in buying from such 
manufacturers a portion of their supply, by the action of some com- 
mission men, brokers, and inspectors, in endeavoring to do a business 
which is a positive injury to the legitimate wholesalers. The whole- 
saler is just as much a necessity in the trade as the manufacturer, 
retail dealer, or consumer, and his business must be protected from 
improper competition, just as much as any other division, to the end 
that a proper profit may accrue to all, consistent with the amount of 
capital, energy, and ability employed. ^ 

Exhibit 3 

agreement of the ASSOCIATION 2 

The Government alleges that: 

At a Joint meeting held in March i and 2, 1899, of delegates 

from the Trade Association, the 's 

1 Italics in this paragraph are the editor's. 

2 Op. cit. United States v. Dealers^ Association. 

Original Petition, Exhibit F, pp. 80-81. 



Trust Methods 347 

Protective Association, the Retail Dealers' Association, the 

Retail Dealers' Association, the Retail Dealers' 

Association, the Retail Dealers' Association, the and 

Association, the 's Association, and the Asso- 
ciation of Dealers, with the members of the 

Dealers' Association, it was unanimously voted to adopt the 
following: 

First. That the Dealers' Association take up 

and formulate rules to classify the trade into sections, as follows: 

1. Manufacturers. 

2. Wholesale dealers or agents. 

3. Retail dealers and other legitimate customers of the whole- 
sale trade. 

The retail trade to be classified according to the rules governing 
such trade in the various States at the present time, provided that 
in cases that may arise where the wholesaler and retailer do not 
agree before a sale shall be effected, the matter shall be submitted 
to a conference committee composed of one member from the retail 

association interested, one member from the 

Dealers' Association, and, in event of these two not being able to 
agree, they shall decide upon a third member of the committee, 
and the decision of such committee shall be final. 

Second. That the Dealers' Association take up 

and consider the pronounced and recognized evils from which both 
branches are suffering, viz: 

1. Sales by manufacturers and wholesalers to consumers. 

2. Sales by brokers, agents, and commission men to consumers. 

3. Sales and quotations by the so-called retail dealers to con- 
sumers, through agents, and by methods used by the wholesaler 
in soliciting trade from the retailers. 

4. That the Dealers' Association consider and 

devise a plan which will enable them, with the cooperation of the 
retail trade, to control all such concerns. 

5. That the Dealers' Association provide a 

plan whereby all wholesale dealers, manufacturers, commission 
men, agents, and brokers reported by a State association for selling 
to the consumers shall be reported to the wholesale trade and 
manufacturers and required to conform to legitimate rules of busi- 
ness. 

The following resolution was also adopted: 

"That it is the sense of this meeting that, in the event of the 



34^ IXDUSTRLIL COAIBIXATIOXS AND TRUSTS 

Dealers' Association compl}ing ^ith the requests 



adopted here to-day, the retail dealers ^ill pledge themselves so 
far as possible, to buy only of members in regular standing of the 
Dealers' Association." 

Exhibit 4 



* * * So the first year's work of this com mi ttee, ably assisted 

by the committee on wholesale selling consumers of the 

Trade Association and their secretary, Mr. , has resulted 

in creatmg between the Dealers' Association and 

the various retail dealers' associations mentioned the great es- 
sentials to all trade-relations work, namely, confidence and joint 

action; and the outcome of this was the agreement. The first 

work which the agreement called for was the classification of 

the various branches of the trade. The committee thought best to 
temporarily pass subdivisions Xos. i and 2 of section i and to devote 
themselves to determining what was legitimate trade for the whole- 
salers to sell to. The agreement provided that this branch should 
be classified according to the rules governing such trade in the va- 
rious States at the present time, with a proviso for settlement by 

joint conference of all cases where the \Miolesale Association 

classification did not agree with that of the local retail association. 
So the secretaries of all retail associations parties to the agree- 
ment were requested to notify the secretar}' of the Wholesale 

Association whenever in their judgment any wholesaler was selhng 
a trade which the retail association did not consider legitimate. 

Upon receipt of such request the secretar}' of the \Miole- 

sale Association proAdded a classification committee for each indi- 
\-idual case. 

If the decision of such committee agreed with the decision of the 
retail association nothing further was necessar}- except to record 
the decision. If the two classification committees disagreed, each 
went to a conference committee. 

************ 

We feel that the progress made and herein reported is secure 
and on a firm foimdation, but we particularly call your attention 
to the further requirements of the agreement, so the subject 

^ Op. cit. Ufiited States of America v. Dealers' Assocmtion, 

Exhibit G. pp. S2-83. 



Trust Methods 349 

may have your best thought and judgment and that this association 
will be growing in its ability to grasp and intelligently decide all 
questions of trade relations. These requirements are: 

First. That we extend our classifications so that we will cover 

all the provisions of the agreement, and not only jointly 

determine who is proper and legitimate trade for the wholesalers to 
sell to, but who it is legitimate for the retailers to buy from; who 
it is legitimate for the manufacturer to sell to, and to establish a 
plan for recording all persons engaged in any form of scalping. 

Second. We will again refer to that portion of the agree- 
ment which says: It is the sense of this meeting that in the event of 
the Dealers' Association complying with the re- 
quest adopted here to-day, the retail dealers will pledge themselves, 
so far as possible, to buy only of members in regular standing 
of the Dealers' Association. 

Third. The recent reports of the annual meetings of various 

retail associations show that the retailers are looking to the 

Dealers' Association for support in all questions per- 
taining to trade relations. This is a pleasure to know, for your 
committee thinks it is proper that all persons between the whole- 
salers and retailers should be referred to and adjusted by the 

Wholesale Association for the wholesalers and the State 

retail associations for the retailers. 

Fourth. We refer to section 3 of the second provision in the 

agreement, which says: Sales and quotations by the so- 
called retail dealers to consumers through agents and by methods 
used by wholesalers in soliciting trade from the retailers. 

Fifth. The work of this committee has entailed on the association 
unusual expenses, and as the work progresses these expenses will 
increase. The committee should not be limited in its future work 
by lack of money. We ask your consideration of this question, so 
that at the proper time this necessary support will be furnished. 

GROUP 6 

Exhibit i 

customer's lists of the 'S ASSOCIATION i 

The Government alleges that: 
During the period of several years last past the officers of said 
's Association adopted, in further pursuance to the afore- 

^ Op. cit. U. S. V. and Others. Petition, pp. 36-39. 



350 Industrial Combinations and Trusts 

said conspiracy and combination, a scheme invohdng the use of 

so-called "customer's lists"; that is to say, the defendant, 

as secretary of said last-named association, and with the 



knowledge, approval, and assistance of the officers and directors 
thereof, defendants herein, secured from the members of said 
association the names and addresses of the manufacturers and 
wholesale dealers with whom the said retail members carried on 

the business of buying and receiving in the regular course of 

the interstate trade and commerce heretofore described. These 

lists were then rearranged by said so that at all times he was 

informed of the names of the retail customers in his territory doing 
business with a large number of manufacturers and wholesalers 
located in many States. The method of using said lists in pursuance 
to said conspiracy and combination was and is as follows: 

Upon learning of a shipment of from a manufacturer or 

wholesaler to a consumer as aforesaid, said , acting 

as secretary of said association, notified a number of the retail 

customers of said manufacturer and v/nolesaler making the so-called 
unethical shipment, which customers, in accordance with a pre- 
arranged plan, wrote to said manufacturer and wholesaler, protest- 
ing against such shipment and threatening withdrawal of trade if 

the same practice continued. At other times the said 

acting in his capacity as secretary of said 's Asso- 



ciation, wrote to such offending manufacturer and wholesaler con- 
cerning such so-called nonethical shipment, representing that the 
regular retail dealers resented sales to consumers by manufacturers 
or wholesalers, and so using the power of the united strength of 
such retailers to compel said manufacturer and wholesaler to 
cease dealing with such consumer. 

Another use to which said "customer's lists" were put by said 
acting as secretary of said association as afore- 
said, in further pursuance to said conspiracy and combination dur- 
ing many years last past has been to exchange said lists with other 

secretaries of other trade associations operating in other 

States than those covered by said 's Association as afore- 
said, and when so exchanged the same method was pursued by said 
other secretaries in using such exchanged Hsts, that is to say the said 
other secretaries would write letters of complaint or cause the mem- 
bers of their respective associations to write letters of complaint 
to the said manufacturer or wholespJer on account of such "noneth- 
ical" sales. 



Trust Methods 351 

In further pursuance to said conspiracy and combination said 

as secretary of said 's Association, and the 

approval and cooperation of the officers and directors of said asso- 
ciation, some of whom are defendants herein, conducted extensive, 
correspondence with other secretaries of other trade associa- 
tions conveying information as to the alleged nonethical dealers in 

who had sold and shipped to consumers in violation of 

said "code of ethics," doing business as aforesaid in various States 
of the United States, the purpose and effect of such correspondence 
being to restrict the trade of the manufacturer and wholesaler to 
the regularly recognized retail dealer as aforesaid. 

Exhibit 2 
circulation of information ^ 
The Government alleges that: 
In further pursuance to said conspiracy and combination, during 

the period aforesaid, the said , acting as secretary 

of said 's Association and as a member of said s' 

Bureau of Information, with the aid, assistance, and cooperation of 

said , and with the aid and assistance of other members, 

officers, and directors of said 's Association and other 

dealers and members of other trade associations not named herein 
as defendants, collected the information of sales and shipments of 

from the manufacturers and wholesale dealers to consumers 

hereinbefore mentioned, and with the knowledge, consent, and 
approval of all other parties heretobefore in this paragraph men- 
tioned, and did thereupon, about March, 1909, furnish such infor- 
mation to the members of the said s' Bureau, which 

information, with the names of the offending manufacturers and 
wholesalers, was distributed to the various retail dealer members by 
the secretaries of the various trade associations affiliating with the 

said s' Bureau of Information; and the said information, 

with correspondence and records of proceedings, was published in 

the trade paper called the in the year 1909, such publication 

being accomplished by said — and other secretary mem- 
bers of said s' Bureau, with the intent and purpose of 

depriving the said offending manufacturers and wholesale dealers 

of the trade of all retail members of all the trade associations 

affiliated with said s' Bureau of Information as aforesaid. 

^ Op. cit. U. S. V. . Petition, pp. 51-52. 



352 Industrial Combinations and Trusts 

Exhibit 3 

"yes" and "no" lists of the dealers' asso- 
ciation 1 

, November 18, iSgg. 

To the members of the association: 

Upon submission to the classification committee of an inquiry as 

to whether & , New York City; Bros., , N. J. 

& Co., Boston, Mass.; & Co., , N. J. 

, , N. Y. ; Manufacturing Co., Providence, R. I. 

are legitimate customers of the wholesale trade, under the principles 
recognized by this association, said committee has carefully investi- 
gated and expressed the opinion that the above are within the class 
of dealers whose requirements entitle them to buy of the wholesaler. 

This decision is communicated to you by order of the board of 
trustees. 

Yours, very truly, 

Committee on Trade Relations. 

, Secretary 

YES. 

, August I, I goo. 

To the members of the association: 

Upon submission of the question to our classification committees 
as to whether the parties named herewith should be considered 
legitimate customers of the wholesale trade, under the principles 
recognized by this association, said committees have carefully 
investigated and expressed the opinion that they are not within the 
class whose requirements necessitate their buying of the wholesaler. 
This decision is commimicated to you by order of the board of 
trustees. 
Yours, very truly. 

Committee on Trade Relations. 

, Secretary. 

NO. 

(Here follows a list of 78 names of individuals and firms, manu- 
facturing concerns, etc. in the States of New York, New Jersey, 
Pennsylvania, and Connecticut. — Ed.) 

^ Op. cit. U. S. V. Dealers' Association. Petition, Ex- 
hibits O and P, pp. 92-93. 



Trust Methods 353 



Exhibit 4 
circular issued by — dealers' association to the 

TRADE 1 

The following have been reported by the various eastern associa- 
tions as jobbing or selling directly or indirectly to consumers. The 

members of the Dealers' Association are requested 

to cooperate with the eastern associations by refusing to sell them 



(Here follow the names of more than fifty individuals, partner- 
ships, and corporations engaged in the trade. — Ed.) 

Exhibit 5 
official report of the dealers' associa- 
tion, , new york, n. y.2 

Statement to members, April igog. — You are reminded that it is 
because you are members of our association and have an interest in 
common with your fellow members in the information contained 
in this statement, that they communicate it to you, and that they 
communicate it to you in strictest confidence and with the under- 
standing that you are to receive it and treat it in the same way. 

The following are reported as having solicited, quoted, or as hav- 
ing sold direct to the consumers: 

(Here follow the names of more than fifty individuals, partner- 
ships and corporations engaged in the trade. — Ed.) 

REMOVED SINCE LAST REPORT. 

(Here follow the names of fifteen individuals, partnerships, and 
corporations engaged in the trade. — Ed.) 

Members upon learning of any instance of persons soliciting, 
quoting, or selling direct to consumers should at once report same, 
and in so doing should, if possible, supply the following information. 
The number and initials of car, the name of consumer to whom car 
is consigned, the initials or name of shipper, the date of arrival of 
car, the place of delivery, the point of origin.'^ 

1 Op. cit. U. S. V. Dealers^ Association, Petition, Ex- 
hibit T, pp. Q7-98. 

2 Op. cit. U. S. V. Dealers' Association. Petition, Ex- 
hibit U, pp. 98-100. 

^ Italics are the editor's. 



354 Industrial Combinations and Trusts 

As we are associated for mutual protection, we should not go into 

territory where our associates have and sell or offer to sell 

at a price lower than we sell it in our home territory. 

Exhibit 6 
association^ 



The Government alleges that: 

First. During the period aforesaid defendants have conspired 

and confederated together to prevent manufacturers of supplies 

located throughout the United States from selling and shipping 

supplies to any persons, firms, or corporations located in the States 
of California, Washington, and Oregon who have not belonged to 

the Association and whose names have not 

been listed in a book called the ''Blue Book," to be hereinafter de- 
scribed. ... In order to force the manufacturers of suppUes 

to refuse to sell and ship to persons other than the defendants, 
defendants by agreement with each other have continuously during 
said period refused to order or buy supplies from such manu- 
facturers of supplies as have sold and shipped said supphes 

to persons in the States of California, Washington, and Oregon who 

are not members of the Association and are not 

Usted in the Blue Book. 

Acting under agreement with each other, defendants have 
withdrawn their business from manufacturers who have sold and 
shipped to persons who have refused to join said 



Association, or to persons whom defendants have not recog- 
nized as legitimate jobbers, and have not admitted to membership 
therein, and defendants have boycotted such manufacturers imtil 
they compelled them to confine their sales to defendants. 

Second. The defendant of the Associations, 

acting in agreement with the other defendants, has since January i, 

1907, printed from time to time and issued a list of jobbers of 

supplies in the United States, commonly called in the trade the 
"Blue Book," and has distributed said Ust to manufacturers en- 
gaged in the manufacture and sale of supplies, and to the 

jobbers named in the Blue Book. In the Blue Book are printed 

arbitrary definitions of a manufacturer and jobber of supplies. 

These definitions express the opinion of the defendants as to the 

1 United States of America v. Association. Petition in 

Equity, In the Court of the United States for the District of , 

pp., 12-14. 



Trust Methods 355 

qualifications necessary in order to entitle one to be called a manu- 
facturer or jobber and to be treated as such. It is the intention of 

the and of the defendants that the Blue Book shall be 

considered by the manufacturers as containing the names of all 
persons, firms, and corporations in the United States who are legiti- 
mate jobbers of suppHes. All the defendant corporations 

and partnerships (except the of the Associa- 
tions are listed in the Blue Book; furthermore, these defendants are 
the only persons, firms, or corporations located and doing a — — 
business in the States of California, Washington, and Oregon 
who are named in the Blue Book. 

During said period no person, firm, or corporation desiring to 
engage in business as a jobber of supplies in the States of Cali- 
fornia, Washington, or Oregon could be listed as a jobber in the Blue 
Book except at the arbitrary discretion of a majority of the jobbers 
belonging to the Association, and doing busi- 
ness in the locality where said person, firm, or corporation desired 
to do business as a jobber, and no person can now be so listed 
except by the consent of such jobbers. In order to prevent an 

increase in the number of jobbers of supplies in said three 

States, defendants, agreeing together, have repeatedly and arbi- 
trarily refused to give their consent to the listing in the Blue Book 
of persons, firms, and corporations desirous of engaging in business 
as jobbers in said States. 

GROUP 7 
Exhibit i 

TRADE 1 



The Government alleges that: 

From about the year 1904 to the present time , de- 
fendant herein, has conducted a detective agency under the name 

and style of the Information Bureau. The said is a 

regularly paid employee of the voluntary association heretofore 

described as the 's Association. During the several years 

last past, and until the present time, said , with the assistance 

of a corps of detectives, and in the performance of work done in 
pursuance to and in assistance of said conspiracy and combination, 

has collected information respecting sales and shipments of 

from manufacturers and wholesalers to consumers, and has fur- 
^ Op. cit. United States v. . Petition, pp. 54-55. 



356 Industrial Combinations and Trusts 

nished said information to said and other secretary 

members of the said s' Bureau of Information for the 

uses and purposes hereinbefore described, and to the said 

for the purpose of having the same published in the said 

, and so distributed throughout the trade in various 

states reached by said pubUcation, all with the intent and purpose 

on the part of said , , and of preventing sales and 

shipments of in the trade aforesaid between the manufacturer 

and wholesaler on one hand and the aforesaid consumer on the 

other. Said also conducted investigations and made reports 

to the officers and members of said 's Association of the 

character of the business done by various retail dealers in 

various States, which dealers had not complied with the aforesaid 
rules and regulation entitling them to membership in said last- 
named association, and in pursuance to said general conspiracy and 

combination said , with knowledge, approval, and assistance 

of the officers and members of said 's Association, adopted 

and carried out various schemes and devices for the injury and 

destruction of the business of said retail dealers who desired 

to do business in a manner different from the code of ethics and 
rules adopted by said association. The money used in promoting 

the work of said and the said Information Bureau was 

raised by subscriptions paid by members of said 's Asso- 
ciation and others, and solicited by said and 

and other secretary members of said s' Bureau of In- 
formation. 

Exhibit 2 

EXPLOSIVES trade ^ 

A. I endeavored to locate the trade that the Chattanooga 
Powder Co. was supplying and then take it away from them by 
naming lower prices. 

Q. Did you locate the trade? 

A. I was advised by the railroad agent at Ooltewah, Tenn., who 
was in the employ for the purpose of furnishing us with the infor- 
mation regarding all of the shipments of the Chattanooga Powder 
Co. 

Q. Who employed him? 

A. I did, sir. 

' Te?timony of F. J. Waddell, op. cit. U. S. v. E. J. du Pont de Nejnoiirs and 
Company. Pet. Rec. Testimony, Vol. I, pp. 257-264. 



Trust Methods 357 

Q. When? 

A. I think it was in the year 1893. 

Q. What did you pay him? 

A. I first paid him $15 a month, and later $18. 

Q. What was he to do for that? 

A. He was to furnish a weekly statement showing all shipments 
of powder made from Ooltewah, Tenn., by the Chattanooga Powder 
Co., giving name of consignee, the number of kegs, and the des- 
tination. 

Q. What did you do with the reports that were made to you? 

A. I mailed a copy of it to Wilmington, Del. every week. 

Exhibit 3 



REPORTS OF COMPETITIVE SHIPMENTS OBTAINED FROM RAILROAD 
EMPLOYEES IN OTHER PARTS OF THE COUNTRY. 

BIRMINGHAM, ALA. 

The Government alleges that: 

G. T. X , who was assistant to the manager in the ofiice of 

the T Company at Birmingham up to some time in 1902, 

testified that at that time the T had a system of obtaining 

from railroad clerks, information concerning shipments of in 

that territory by independent concerns, including both shipments 
into Birmingham and shipments from Birmingham to all points. 
This information was sent by the railroad clerks to a post-ofiice 

box, without any name, this box being rented by the T 

Company for that purpose alone. The information so obtained 

was furnished to traveling salesmen and other agents of the T 

with instructions to get the business in any way they could; the 

T was usually able to get its representative to the customer 

before the shipment got there. (Vol. — , pp. 2152-5.) 



TERRITORY OF COMPANY OF 



D. J. D was employed by the T — — from about 1885 to 

about 1900 as special man in the sales department with head- 
quarters at . The territory of the T Company of 

, with which he was then connected, originally included 

1 Op. cit. Company v. the United States. for United States, 

Vol. — , pp. 597-601, 607-609, 615-618, 620-622. 



358 Industrial Combinations and Trusts 

Michigan, part of Indiana, and nearly all of Ohio. D testified 

that during all that time the T Company received re- 
ports of competitive shipments throughout its territory, which were 
generally understood in the office to come from railroad employees. 
(Vol. — , pp. 3030-32.) 



D also testified to individual cases in which he knew of 

agents of railroads furnishing information regarding competitive 
shipments. He stated (vol. — , pp. 3032-33) that at Alliance, Ohio, 

the agent of the Railroad furnished such reports and received 

free as compensation, and that at Massillon, Ohio, the agent 

of the & did the same, and also received as 

compensation. The defendants called the agent of the Rail- 
road at Alliance and the agent of the & at Massillon, 

who denied that they had furnished such information or received 

therefor; but on cross-examination it appeared, that there 

were numerous employees of the Railroad at Alliance and 

several employees of the & at Massillon. ( , 

vol. — , p. 1478; , vol. — , p. 1480.) It is quite evident that 

D used the term "agents" in a general way, referring to some 

person connected with the railroad office, and that the mere state- 
ment of these two head agents is no contradiction of his testimony. 

In this connection it may be noted that C was the T 's 

agent at Massillon at the time testified to by D , and that on 

June II, 1900, K. W. I , who was manager of the Cleveland 

station for the T , wrote the letter (Petitioner's Exhibit 828) 

to C at Massillon, asking him about certain shipments of the 

H Company, and saying: 

It seems to me that you could learn this of local freight agent. 
If you can, let us know. 

D also testified (vol. — , pp. 3032-3) that he knew about an 

arrangement at Lansing, Mich., where the clerk at the 

depot w^as furnishing information regarding competitive shipments, 

and was furnished blanks by the T Company upon which 

to report. 



POINTS IN ILLINOIS. 

G. L. K , who had been a salesman for the T in 

Peoria (111.) territory, testified that he was instructed by M , 



Trust Methods 359 

special agent of the T at Peoria, to go to Monmouth, 111. 

where an independent concern, the X Company, was doing 

business, and make arrangements with employees of the railroads 
to furnish reports of that company's shipments; that he employed 

a freight handler in the office of the Railroad for $2 a 

month, who furnished this information, and that M paid him 

the amount by cash or check. (Vol. — , pp. 1336, 7.) 

M , testifying for the defendants, admitted (vol. — , p. 1017) 

that K got this information, and that he did not know but that 

he got it from railroads, but asserted that he did not pay him the $2 
a month. It may readily be, however, that the item was included 

in K 's expense accounts and paid in a general total, and not 

by way of separate, specific payment. 



COUNCIL BLUFFS, IOWA, AND LINCOLN, NEBR. 

B , who at the time referred to in his testimony, 



1895 and 1896, was employed by theT at Council Bluffs, Iowa, 

testified that he obtained reports of competitive shipments from 
employees of the , , , and railroads, cover- 
ing all independent passing through Council Bluffs; that these 

reports showed the name of the consignor, the name and address 
of the consignee, and the number of barrels in the shipment; and 

that under the instructions of the T 's agent at Council Bluffs, 

K W. T , he gave these employees for such service 

(Vol. — , pp. 3142-3.) 

He also stated (p. 3143) that he tried to make arrangements with 
railroad taggers and men whose business it was to get car numbers, 
etc., to make reports of the shipments from Lincoln, Nebr., of the 
N Company, an independent concern, and did not suc- 
ceed, but that the T 's own employees obtained the informa- 
tion by watching the goods at the depots. Later, when Mr. B 

was a traveling salesman for the , he received from the T 's 

office lists of competitive shipments into his territory. 



TERRITORY. 



J. J. D , who was a salesman and division auditor for the 

Company from 1900 to 1903, testified that during this 



time there was a system in vogue by which the furnished 



360 Industrial Combinations and Trusts 

reports to its salesmen showing the competitive shipped into 

their respective territories; that frequently, on the basis of these 

reports, such salesmen would tell customers of independent 

companies about shipments of before the goods arrived; that 

the salesmen were instructed to find out the circumstances, the 

prices, and why the could not sell the customers. D 

also testified that he was instructed by Y , the general manager 

of the , to falsely tell such customers that the they 

had bought had been originally purchased from the 

Company and that the could supply the same di- 
rectly at a lower price. (Vol. — , pp. 906-13.) 

Y was called as a witness for the defendants in the Missouri 

case in 1906, and on cross-examination was compelled substantially 

to admit that the Company regularly got reports 

from railroad employees regarding competitive shipments, and 
that these reports were paid for; and that the information thus 

obtained was sent to the agents, with instruction to cut 

prices if necessary to get the business. (Vol. — , pp. 11 10-12.) 

OTHER UNFAIR METHODS OF OBTAINING INFORMATION 
REGARDING CONPETITORS' BUSINESS. 



ALBANY, NEW YORK:. 

As already stated, G Brothers have for some years been 

actively competing with the T Company in the sale of the 

at Albany. It appears that in the spring of 1904, Mr. W 

E , the T 's manager at Albany, employed the F De- 
tective Agency to secure information regarding the business of 

G s. The transaction is described in the testimony of I. J. 

D , who was a part owner of the F Detective Agency 

(vol. — , pp. 1952-62), and also in the testimony of M. R. O , a 

driver of the G s, to whom a bribe was offered to furnish infor- 
mation (vol. — , pp. 1923-2S). There is no contradiction of this 
testimony by the defendants. 

It appears that W E asked the managers of the detective 

agency to have someone bribe a driver in the employ of the G 

Brothers to furnish reports of their business. The detective agency 

engaged a man for this purpose, who met O and represented 

himself as in the insurance business. Later he met 0-- — again 
and told him what his real business was, and entered into an ar- 



Trust Methods 361 

rangement by which was to furnish at stated periods reports 

showing the business of G Brothers. He agreed to pay O 

$5 for each report, and actually gave him $5 in advance. O 

immediately informed G Brothers of what had taken place, 

turned over the identical $5 to them, which was marked for identi- 
fication and produced at the time of taking the testimony in this 
case. He was instructed by his employers to proceed to carry out 
the arrangement. 

The man who had interviewed O told him that he would 

receive a letter of instructions from New York. He did receive 

such a letter (Petitioner's Exhibit 645) signed "G N ," 

instructing him to send a report on the loth of each month to 

G N , 156 West 105th street. New York City, and to sign 

with an ''X". Petitioner's Exhibit 647 is a letter subsequently 

received by from G N , dated May 13, 1904, which 

says in part: 

Report received and is satisfactory for a beginner. 
Try to be more accurate in the information in future, 
and have report include in full — 

(i) Dates when cars arrive. 

(2) Whether box or tank cars. 

(3) All letters and numbers on cars. 

(4) Contents of cars. 

The man who went under the name of G N was really 

named V . He forwarded the reports sent him by O to 

the F Detective Agency at Albany, and they in turn delivered 

them to the T . W E furnished the F Detective 

Agency the money which was paid to O . 

D also testified that W E employed the F- 



Detective Agency to furnish men to follow up and watch the wagons 

of the G s in Albany and also the wagons of the independent 

U Company at Troy; that sometimes they would have 

one man following the wagons and sometimes as many as three; that 
these men kept a record of the places where the wagons made stops; 
that each of them was paid $4 a day by the detective agency, and 

that the T paid the detective agency for the services thus 

rendered. 

Q , one of the men who was employed by the detective 

agency to follow G Brothers' wagons, confirms this testimony. 

(Vol. — , pp. 1929-31.) 



362 Industrial Combinations and Trusts 



BIRMINGHAM, ALA. 

G. T. X testified that when the G. T. X Company 

started in business in Birmingham, in 1905, the T had a man 

follow their wagons on a bicycle constantly to count the 

number of buckets delivered at each store. Later the T tried 

to get reports from the drivers of the X Company's wagons. 

X instructed one of his new drivers that the T Com- 
pany would probably approach him in a day or two with a proposi- 
tion to pay him for information, and that he should accept, and 
instructed him to agree to give a copy of the bills each night for 

50 cents a day. Soon a representative of the T Company 

actually did make this proposition, and the driver furnished him 
misleading reports, which were made out by the manager of the 
X Company. (Vol. — , pp. 2157-8.) 

S , the special agent of the T at Birmingham during 

this time, testified that he never authorized an employee of the 
T to procure information from a driver of the X Com- 
pany, and that it was never done with his knowledge or by his 
approval, and he does not think it was done at all. (Vol. — , p. 

849.) 

X 's specific statement remains uncontradicted. S 's 

subordinates might have done things of which he did not know. 
His duties covered the entire Birmingham division, including all or 
nearly all of Alabama. 

PEORIA, ILL. 

U. S. P testified that G C , assistant manager of 

the T at Peoria, offered him $20 a month if he would get in- 
formation regarding the shipments of the S Company 

from Peoria; and that he got the information by bribing N , a 

teamster of the S Company, for $2.50 a week to furnish a 

report of all shipments, P in turn giving these reports to C . 

This arrangement continued for about sLx weeks when it was dis- 
covered and the employee discharged. (Vol. — , pp. 1347-8.) This 
statement is corroborated in every respect by the testimony of 

Mr. Y. D. F , manager of the S Company at Peoria, 

who discovered the bribery of his employee by Merritt. (Vol. — , 
PP- 1374-5.), 

V V. 



Trust Methods 363 

information obtained by the t from inspectors^ 

office regarding competitive business. 

D. J. D testified, that, while he was in the employ of the 

T from 1886 to 1900 in the territory of the T Com- 
pany of , the state inspectors furnished the T monthly 

reports of their inspections of , and that he frequently saw the 

deputy inspectors at the Office of the T . (Vol. — , p. 

3034.) Petitioner's Exhibit 827 is a letter written by D. J. S , 

manager of the and sales department at Cleve- 
land, to J. W. K , dated June 15, 1900. It states: 

It is important that as far as possible we secure the monthly 
competitive inspection through our local agents. There is no 
reason why our agents should not be able to secure this in- 
formation promptly at points where deputy inspectors are 
located. Of course it is an "open book," and their excuse for 
asking for the figures is simply in order that they may have the 
information a little earlier than if obliged to get it through the 
regular channel. I assume that most of our local people are 
in close enough touch with the deputies to secure the desired 
information. Kindly impress upon them the importance of 
securing same promptly on the first of each month, forwarding 
to you, and you in turn to me, so that I will get the information 
not later than the 5 th of the month. 

G. B. , vice-president of the T Company of , 

called by the defendants, stated (vol. — , p. 15 16-17) that the 

inspectors maintained public records that were open to anyone, 

and that the T had a right to examine these records for the 

purpose of ascertaining shipments or sales of competitors, and com- 
petitors could do the same. These records are public records for 

one purpose only, which is to show whether the bears the proper 

test. Moreover, the information which the T received was 

advance information, the above letter showing plainly that it was 
secured before the results of the inspections became a public record; 
and the T could have no legitimate need for advance infor- 
mation or for any information whatever except for the purpose of 
endeavoring to take trade away from the independents. 

K. W. G , who was manager of the T 's Indianapolis 

territory for some time, testified that reports came to him myste- 
riously every day, delivered by a boy and written on plain paper in 



364 Industrial Combinations and Trusts 

lead pencil, showing the shipments of independent concerns, that 

he believed these came from the office of the state inspector, 

and that the practice continued until it was exposed by indepen- 
dent companies. (Vol. 3, pp. 1325-6.) 

S. T. D , who about 1900 became assistant to H , the 

latter having succeeded G as manager at Indianapolis, testified 

(vol. — , p. 2507) that for about a year information of competitive 
shipments came to the office from a source which was rather a 

mystery to him at the time, but he afterwards learned from H 

that it was delivered by a young man who was in some way con- 
nected with the inspector's office at ; that this young man 

went around examining barrels in the freight depots under the 
pretence of ascertaining whether or not they were correctly branded 
by the inspector's office; that he usually came every day with these 
reports and was very quiet about it; and that these reports showed 
the shipments of all companies doing business in IndianapoHs 

except the T , giving the names of the consignor and consignee, 

the quantity and kind of . 

B , testif3{ing for the defendants, said (vol. — , pp. 892-93) 

that he had never heard of such a thing and did not believe there 

was a word of truth in it, but this is no contradiction of D 's 

specffic testimony. B was at Cincinnati and could not be 

expected to know all the details of the conduct of the business 
throughout the great territory of the T Company of . 

Petitioner's Exhibit 840 is a circular letter addressed to sales- 
men, signed by L B. S , manager, on the letter head of the 

T Company, dated September 16, 1904. It was received 

by E D (vol. — , p. 3144), while he was a salesman of the 

T in Nebraska. The letter is as follows: 

You understand we get a report from the state inspector 

every month, showing the number of barrels our competitors 

receive each of and , and from this report I find 

that the Oil Company is shipping out from 40 to 50 

barrels a day; and yet the reports of competitive shipments 
sent in by our salesmxcn on Form 114 do not show anything 
like this amount; and our home office can not understand why 
there should be such a discrepancy. If you will give this mat- 
ter your strict personal attention, it does appear to me that 

you ought to be able to find out how much of this and 

goes into your territory. I feel that salesmen with 



Trust Methods 365 

ordinary judgment can get this information without making 
the merchant feel that they are too inquisitive, or that they 
are trying to pry into his private business. What it requires 
is a Uttle diplomacy. We are not endeavoring to get this in- 
formation for the purpose of criticism; what we want to know 

is who is receiving the outside and ^ — , and if we knew 

it would put us in a position to help you get the business. I 
want you to make a special effort in this matter, and send in 
Form 114 every day, and give us all the information you 
possibly can. Kindly bear this in mind, and oblige, 
Yours, truly, 

L B. S , Manager. 

At this point we may also call attention to certain testimony with 

regard to the abuse of the inspection system in the interest of 

the T . N N , who for many years was special agent 

of the T in the Decatur (111.) district, having a considerable 

territory under his jurisdiction, testified (vol. — , pp. 1 298-1300) 

that the inspection of in his territory was simply a 

farce; that many of the inspectors did not have instruments for 

inspecting , and did not know how to inspect it, and had no 

desire to do so ; that they would let the T itself have the stencils 

(for branding the statement of inspection on barrels, etc.) and use 

them, without any actual inspection. He said, further, that 

inspectors at the instance of the T , sometimes being in- 
fluenced by a cigar or a drink, would often condemn the of com- 
petitors although it was up to the legal test, and thus prevent its 
sale. He mentioned an instance at Vandalia in 1900 when the in- 
spector condemned a carload of shipped in by the U 

Company, although as a matter of fact the would have stood 

the legal test. 

GROUP 8 



Exhibit 



COMPANY 



The Government alleges that: 

The defendant, , and the other officers and di- 
rectors of the said successive corporations, from time to time 
during the above period, caused to be maintained and did maintain 
at the factory, at — — , , a display room known as the '' Grave- 

1 Op. cit. U. S. V. Company, Petition, pp. 21-22 and 25, 



366 Industrial Combinations akd Trusts 

yard" or "Midway". In this room were shown s of com- 
peting companies which had been forced out of business by the 
methods above set out. Prominent display cards reporting the 
names of these companies, the date when they went out of business 
and the amount of money lost by them, appeared prominently in 
the exhibit. Manufacturers purposing to go into the business 
wTre showm this display, and it was pointed out to them by the said 
officers and their agents as the fate that would befall any company 
seeking to compete with them. 

This process of intimidating manufacturers was known as the 
"glooming" process, and the room was sometimes knowm as the 
"glooming" room. Thousands of merchants and other \dsitors to 
the factor}^ were sho\\TL this exhibit and told that it would be useless 

to buy other s, because competing concerns would soon go 

out of business and fail to maintain the guaranties given vrith 

their s. Said officers and directors, and their agents, pointed 

to such exhibit as a warning to competing manufacturers, dealers, 
and agents, and to other persons and corporations w^ho contem- 
plated engaging in the business of manufacturing and selling 

s, that all competition eventually would be suppressed, and that 

the "graveyard" would be the destination of competitors. 

Said exhibit was maintained for the purpose of harassing and 
discouraging competitors, and for the purpose of injuring and sup- 
pressing their trade and commerce. 



. . The said defendant, and the other directors, 

managers, officers, and agents of said successive corporations, in- 
cluding the defendant company, for the purpose and with the in- 
tent of intimidating and deterring others from engaging in such 
trade and commerce, and of injuring and suppressing others en- 
gaged therein, have from time to time published and caused to be 
distributed various lists purporting to contain the names of various 

companies which have ceased engaging in such trade and 

commerce. One of said Hsts so distributed in January, 19 10, 
reads in part as follows: 

"dead COMPANIES. 

Within the past 15 years 158 companies have been 

organized to compete with the Co. Of these, 



Trust Methods 367 

153 have failed in business. Their combined capital was 
$5,735,000. Their combined loss was $1,970,000. According 

to sworn affidavits of its officers, the Boston Co. 

alone lost $192,750.08. Of every 20 s sold, 19 are . 



Exhibit 2 
CO. 



January 15, 1910. 

We enclose herewith new price list which we are mailing to the 
retail trade to-day. These prices are subject to the actual catalogue 
discount and the cash discount only. 

We also enclose memoranda of the prices at which , , 



cases, and will be billed in future 

to our jobbers. These prices are net, subject to the cash discount 
only. 

These prices are confidential. 

For the best interests of our business we have determined to sell our 
goods exclusively to jobbers, whom we find voluntarily conforming to 
our wishes as to the disposition by them of such goods. ^ 

We shall make all specific sales, except of , with- 
out any restrictions whatever. 

Whether or not our wishes as hereinafter stated be complied with we 
shall from time to time exercise our right to select the jobbers to whom 
we shall sell our goods, and we shall, irrespective of any past dealings, 
refuse to sell to those jobbers who, in our opinion, handle our goods in a 
manner detrimental to our interest or whose dealings with us are in any 
other respects unsatisfactory."^ 

Our present wishes are as follows: 

First. Our goods bearing the following trademarks, to wit: , 

-, and , will be sold by us to our jobbers 



at fixed prices, subject to a cash discount, and we desire that sales 
of these goods by jobbers, whether to retailers or to jobbers, shall 
be without deviation at the prices fixed by us for sales to retailers 
subject only to the cash discount. 

^ United States of America v. Co. and others. Petition in 

Equity, In the Court of the United States for the District of , 

pp. 14-15. 

2 Italics are the Editor's. 



368 Industrial Combinations and Trusts 

Second. are sold only under the terms of the Ucense 

covering their sales. 

Third. On all other goods we place no restrictions as to the prices 
at which they are to be sold by jobbers. 

Fourth. And further, we desire that the jobbers to whom we sell 
our goods bearing the following trade-marks, to wit, 



-, and shall not deal in any other than 

those manufactured by us} 

Fifth. All advertisements of our goods will be subject to our 
Approval. 

Very truly, yours. 

The Company. 



GROUP 9 

Exhibit i 
company 



The Government alleges tiiat : 

The defendant, , and the other directors, managers, 

and ofl&cers of the said successive corporations, from time to 
time, during the above-named period, caused to be built, and 

did build, s to resemble in a general way the appearance of 

other competing s and to produce the same results and per- 
form the same functions. These s were not built or offered 

for sale in good faith, but for the sole purpose of knocking out 

competing s and driving competitors from the field. Such 

s were sold without regard to the cost of their manufacture 

and at such prices as would ruin and destroy competitors; and 
their manufacture and sale was discontinued after the competitor 
had been driven out of business. 

These machines were generally known as ''knockers," and were 

put into the field whenever a new made by a competitor 

appeared on the market, and were used solely for the purpose 
of destro3ring the business of such competitor and of interfering 
with contracts made by such competitors with purchasers of their 



1 Italics, beinning with "shall" are the Editors. 

2 Op. cit. U. S. V. Co. Petition, pp. 16-19, 23-24. 



Trust Methods 369 

The defendant, — , and the other directors, mana- 
gers, officers and agents of the said successive corporations, from 
time to time, during the above-named period, pursued the policy of 

advertising for sale s manufactured by competitors, at prices 

below the cost of manufacture, and below the prices paid for 

such registers These competing s were acquired by the 

defendant company and its predecessors from merchants who had 
purchased them of competitors, and from dealers and agents of 

competing s whom they had either forced out of business by 

threats or intimidations, or whose business they had purchased for 

large sums of money. Such s, when so acquired, were then 

advertised and offered for sale at such greatly reduced prices for the 
sole purpose of injuring and discouraging such competitors and of 
discouraging and forcing them out of business; and said directors, 

managers, and officers also pursued the policy of establishing 

agencies in the immediate neighborhood of competing dealers and 

of so advertising and so selling s dealt in by such dealers, 

and, after forcing such competing dealers out of business, by 
the methods above set forth, the agencies which were so estab- 
lished were discontinued. 

Such directors, managers, and officers also instructed and di- 
rected their agents to pursue the practice of threatening to establish 
agencies in the immediate neighborhood of competing dealers, and 
causing competitors to fear financial losses which would ensue, 
have thereby forced such competitors out of business. 



The defendant, and the other directors, mana- 
gers, and officers of the said successive corporations have, from 
time to time, caused to be held and have held various conventions, 
meetings, and conferences which were attended by agents and other 
employees, and at which the schemes and plans for preventing and 
destrojdng competition and of creating a monopoly were discussed, 
and at which said agents and employees were instructed and di- 
rected to hinder and prevent the sale of s by competing com- 
panies, agents, and dealers, and at which such agents and em- 
ployees were instructed and directed to pursue the various wrongful 
and unlawful methods herein set forth. 

The said directors, managers, and officers also caused to be sent 
out, and did send out, various letters of instruction to their agents 



370 Industrial Combinations and Trusts 

and employees directing them as to further methods of obstructing 
and suppressing the trade of competitors. 

The said directors, managers, and officers, from time to time, 
during the said period, caused to be pubUshed and did publish a 

paper known as "The ," which was sent out to agents as 

confidential matter, and which was intended to be and w^as re- 
garded as a printed letter of instruction. The directions given by 
the managers and officers of said successive corporations, and va- 
rious speeches and statements of such managers and officers, were 
pubUshed therein, and their views given circulation among the 
agents through the medium of this journal. This publication 
frequently announced the intent and policy of such directors, 

managers, and officers to monopolize the industry, and 

by means of said journal agents were imbued with the spirit and 
plan to obtain such monopoly and to exclude other competitors 

from the business by wrongful and unlawful methods. Said 

agents, in other ways, were directed, advised, and instructed by 
such directors, managers, and officers to pursue a war of exter- 
mination against all competitors, and were threatened "with dis- 
missal, and were dismissed, for permitting competition to exist in 
their territory. Said agents, so advised and instructed in such 
meetings and through such letters and publications and by other 
means, thereupon carried out and assisted in carrying out such 
plans and purposes of such directors, managers, and officers. 



The defendant, — , and the other directors, offi- 
cers, and agents of the said successive corporations have, from time 
to time, during the above-named period, threatened to institute, 
and have instituted and caused to be instituted, various suits 
against competitors, dealers, and manufacturers, for the sole pur- 
pose of discouraging, preventing, and suppressing the manufacture 
and sale of other s. 

Such directors, managers, and officers instituted such unwar- 
ranted and unjustifiable suits .or the purpose and mth the intent, 
by reason of the heavy expense which would be incurred in such liti- 
gation, of the sooner being able to crush competitors, and as a result 
thereof, of purchasing the business of such competitors and making 
the dismissal of such suits a part of the consideration for the agree- 
ment of such competitors not to again engage in such business. 

And such directors, managers, and officers, from time to time, 



Trust Methods 371 

during the above-named period, conspired and agreed with various 
of the persons so sued by them and whose business they had secretly 
purchased, that such persons should not hereafter make any defense 
to such suits, or make only such defense as would enable the suc- 
cessive corporations to obtain judgments in their favor. 

Said directors, managers, and officers would cause the result of 
such collusive judgments to be advertised and did widely advertise 
the securing of such judgments, for the purpose of further threaten- 
ing and harassing competing manufacturers, their dealers, and 
agents, and the users of competing s. 



The defendant, , and the other directors, mana- 
gers, officers, and agents of the said successive corporations have, 
after a long series of assaults upon competing manufacturers, 
dealers, and agents, by the methods and means above set out, and 
by other methods, coerced, persuaded, and prevailed upon them 

to cease manufacturing and selHng or handling the same; 

and said directors, managers, and officers have caused to be paid 
and have paid out of the treasuries of said successive corpora- 
tions large sums of money to various manufacturers and dealers 
in consideration of the purchase of their business and agreement to 
abandon the same and thereafter not to engage in such business. 

Said directors, managers, officers, and agents, in the manner 
above set out, also coerced, persuaded, and prevailed upon various 
agents of competing companies to violate their contracts of em- 
ployment with competitors and to abandon their employment, 
and have paid such agents large sums of money for so doing; and 
have, in consideration of their abandonment of such contracts 
and such employment, promised and given to such agents employ- 
ment. 

Exhibit 2 



The Government alleges that: 

Some time during the year 1905 a large number of producers of 
of and caused to be organized under the laws of 

* United States of America v. Company ei al. Petition in 

Equity, In the Court of the United States, for the Division of the 

District of , pp. 11-13. 



372 Industrial Combinations and Trusts 

the State of Florida a distributing company, known as the 



Export Company, with a large capital stock, the avowed 
purpose of this organization on the part of the producers being 

to create a normal competition and to free the trade in of 

and from the grasp of the aforesaid combination and 

monopoly, and to steady the market prices in of and 

, and to render the business of the producer less precarious and 

less hazardous. 

Thereupon, as soon as the said Export Company en- 
tered into active business, the aforesaid S. Company, 

Company, A and & , S. S — 

, S. , J. , C. , M. , 

and entered into the fiercest trade warfare against said 

company, and arbitrarily ran the prices of of and 

in the producing section up far beyond any actual value, and 
by a system of spying upon said Export Company as- 
certained who its customers were, and offered of and 

to said customers far below the actual cost of the same; and 

said Export Company, being thus unable to dispose of 

its stock of of and , accumulated a large quantity 

thereof, a great part of which was hypothecated to the banks. 
Thereupon the S. Company and others, by unfair manipula- 
tion, caused the Savannah market to decline abnormally, actually 

causing the quotations in of to be reduced 30 per cent 

in two weeks, which decline in the market caused the banks to 

caU upon the Export Company for additional margins, 

which it was unable to put up, and the Export Company 

was thus compelled to sell out all of its accumulated stock in 

of and to the aforesaid combination at such a loss that 

its capital stock was almost entirely mped out. Said combination 

then and there exacted from the Export Company a 

written contract not to further engage in the business of buying, 

shipping, and selling of and for a period of five 

years, which left the aforesaid combination in almost complete 
control of the distributing part of the interstate and foreign com- 
merce in of and . 

The combination then attacked all the few remaining competitors 
it had with a system of spying and by other unfair methods of com- 
petition, such as overbidding weak competitors in the purchase of 

of and , and offering to undersell weak competitors 

to their customers, and arbitrarily bidding the Savannah market 



Trust Methods 373 

up or down as suited its purpose; and was thus enabled to acquire 
control and did control approximately 90 per cent of the American 
product in of and . 

Exhibit 3 
consolidation coal company^ 

The Baltimore and Ohio Railroad Company owns something over 
52 per cent of the capital stock of the Consolidation Coal Company, 
which was acquired about 1873, and thus it controls the coal com- 
pany and the Cumberland and Pennsylvania Railroad Company 
(P- 973)- The Consolidation Coal Company is a large miner of 
coal (pp. 879-880, 2177). In 1904 it mined 1,833,371 tons. 

In 1904 the Consolidation Coal Company acquired a majority of 
the stock of the Metropolitan Coal Company of Boston (p. 879), 
which latter company is engaged in the retail trade, buying coal 
f . o. b. Baltimore or Philadelphia, as the case may be, and carrying 
the same to Boston and there distributing it, by retail, to the trade 
at that point and interior towns (pp. 885-886). The Consolidation 
Coal Company has barges which are occasionally used in carrying 
the coal for the Metropohtan Coal Company, but usually it is 
carried in vessels chartered by the latter company (p. 886). In 1903 
the Consolidation Coal Company acquired a majority of the 
stock of the Somerset Coal Company, paying therefor the sum of 
$22.50 per share (p. 975). (Minute book of the Consolidation 
Coal Company.) 

THE FAIRMONT COAL COMPANY. 

On the 20th day of June, 1901, the Fairmont Coal Company was 
organized, and as of July i, 1901 (p. 939), purchased a large amount 
of coal property upon which were located some 35 mines, more or 
less, from Mr. C. W. Watson and others (p. 941, etc.) The coal 
produced by these mines amounted to a very large tonnage, to 
wit: 

Tons. 

1902 3,934,217 

1903 • •3.691,783 

1904 3,750,176 

1 Report on Discriminations and Monopolies in Coal and Oil. Interstate 
Commerce Commission, Report of January 25, 1907, pp. 8-1 1. 



374 Industrial Combinations and Trusts 

The property was transferred to the Fairmont Coal Company 
free of debt, except $475,000, secure by mortgage on the property. 
(Minutes of the Fairmont Coal Company.) 

In the year 1903 the Fairmont Coal Company also purchased the 
control of the Clarksburg Fuel Company (p. 878), which latter 
company was incorporated under the laws of the State of West 
Virginia on the i6th day of September, 1901, to engage in mining 
and selling coal and manufacturing coke. It owns a number of 
coal properties which produce about 800,000 tons of coal per year. 
(Cramp, Mitchell & Serrill's Manual of Statistics, 1905, pp. 444- 

445-) 

The Fairmont Coal Company owns about 33,000 acres of bitu- 
minous coal lands and controls by lease about 24,986 acres, and 
also has interests leased to it by the Monongahela Railroad Com- 
pany and by the Monongah Company. (See Cramp, Mitchell & 
Serrill's Manual of Statistics, 1905, p. 501.) 



THE NORTHWESTERN FUEL COMPANY. 

The Fairmont Coal Company also owns (pp. 365, 879) the 
Northwestern Fuel Company, which is a corporation formed under 
the laws of the State of Wisconsin, on the 28th day of October, 
1 90 1, and which is the successor of a Minnesota corporation of the 
same name. The business of the company is the forwarding, stor- 
age, selHng, and retail distribution of coal and the manufacture and 
sale of coke for Chicago and the Lakes (pp. 882, 885). This com- 
pany has docks on Lake Michigan and Lake Superior, at Duluth, 
West Superior, Milwaukee, possibly Ashland, and other points, and 
has a hard-coal breaker at Chicago (pp. 882-884, etc.) and handles 
not only the coal of the Fairmont Coal Company, but that of other 
companies, and during 1905, handled about 2,500,000 tons, of 
which, the Fairmont Coal Company and its associate companies 
furnished about 800,000 tons. About 100,000 tons were purchased 
from independent operators along the lines of the Baltimore and 
Ohio Railroad (p. 885.) 

The wharves and docks of the Northwestern Fuel Company are 
used by the Fairmont Coal Company and its associate companies 
for storing large amounts of coal, which are shipped in the summer 
time for distribution when the winter approaches. (See Cramp, 
Mitchell & Serrill's Manual of Statistics, 1905, p. 632.) 



Trust Methods 375 



THE PITTSBURG AND FAIRMONT FUEL COMPANY. 

In June or July, 1904, the Pittsburg and Fairmont Fuel Company 
was shipping coal at the rate of something over 300,000 tons per 
year. Previous to that time it had been selling its coal through the 
Fairmont Coal Company and had been getting the use of certain 
individual cars owned by the Fairmont Coal Company, which 
latter company determined to put an end to this relationship, and 
immediately thereafter a majority of the capital stock of the Pitts- 
burg and Fairmont Fuel Company was sold to the Fairmont Coal 
Company for $1 (pp. 904, 911). Mr. C. W. Watson the president 
of the Fairmont Coal Company, states that there were other con- 
siderations, in that they aided the Pittsburg and Fairmont Fuel 
Company in its finances. 

It would seem that after the notice of the Fairmont Coal Com- 
pany to the Pittsburg and Fairmont Fuel Company, that the first- 
named company would cease acting as its sales agent and would 
not allow it the use of the equipment controlled by the Fairmont 
Coal Company, the stockholders of the Pittsburg and Fairmont 
Fuel Company practically gave to the Fairmont Coal Company a 
majority of the stock of the Fuel Company, and the natural in- 
ference is that the stockholders were afraid that their tonnage might 
be decreased unless the alHance with the Fairmont Coal Company 
was strengthened and continued. 

SOUTHERN COAL AND TRANSPORTATION COMPANY. 

The ConsoHdation Coal Company owns 2,501 shares out of 5,000 
shares of the capital stock of the Southern Coal and Transportation 
Company (pp. 1002, 1006), which latter company owns about 
4,800 acres of coal lands in Barbour County, W. Va., with its mines 
near Berryburg. The coal is of the Pittsburg vein (p. 2806), and in 
the latter part of 1905 the managers of the Southern Coal and 
Transportation Company, finding that they were not getting along 
prosperously on account of the fact that they could not get sufficient 
car service on the Baltimore and Ohio Railroad (p. 280), determined 
to sell out their properties, and thereafter a contract was made by 
Mr. B. F. Berry, the president of the company, to sell the entire 
capital stock, together with all of the bonds of the company, to 
Messrs. J. H. Wheelwright and C. W. Watson (p. 281 1) for the sum 
of $375,000 (pp. 2810, 1009-1010). 



376 Industrial Combinations and Trusts 

Mr. C. W. Watson was the president of the Consolidation Coal 
Company and Mr. J. H. Wheelwright was the vice-president thereof, 
and immediately after the purchase of the stock and bonds of the 
Southern Coal & Transportation Company, Messrs. Watson and 
Wheelwright sold 2,501 shares of the stock out of the 5,000 shares 
and all the bonds of the company to the Consolidation Coal Com- 
pany for the sum of $400,000. 

It would appear from the evidence of Mr. C. W. Watson (p. 1007, 
etc.) that it was agreed that the $25,000 cash payment, apparently 
realized by him and Mr. Wheelwright, was to be put in the treasury 
of the Southern Coal and Transportation Company, and it is not 
clear whether the mortgage indebtedness of the Southern Coal 
and Transportation Company, amounting to $500,000, was canceled 
or not (p. loio), but there was an understanding that there might 
be a new issue of bonds, in lieu of the $500,000 of mortgage bonds, 
for the purpose of paying back to the Consolidation Coal Company 
the money that it had invested (p. 1013), and out of the transaction 
it would appear that Messrs. Watson and Wheelwright made a 
profit of 2,499 shares of the capital stock of the company. 

It also appears that the original owners of the Southern Coal and 
Transportation Company had about $500,000 invested (p. 2806), 
and that they had been engaged in mining at that point for three or 
four years (p. 2807), and that their whole difficulty was an insuffi- 
cient car service from the Baltimore and Ohio Railroad (pp. 2807- 
2809), and in selling out the property the original stockholders 
sacrificed their interest and lost money on the transaction (pp. 2810, 
281 1), and that the property would have been worth much more 
on any railroad that furnished equipment to take care of the output 
(pp. 2811-2812.) 

From the foregoing it will appear that the Fairmont Coal Com- 
pany owns or controls the Clarksburg Fuel Company, the North- 
western Fuel Company, and the Pittsburg and Fairmont Fuel 
Company, and that the Consolidation Coal Company owns, or con- 
trols, the Somerset Coal Company, the MetropoHtan Coal Com- 
pany, the Cumberland and Pennsylvania Railroad Company, and 
the Southern Coal and Transportation Company, and, in addition, 
mines of its own in the Cumberland district. 

About the ist of January, 1903, the Consolidation Coal Com- 
pany bought a majority of the stock of the Fairmont Coal Company 
at $47.50 per share (p. 975). The capital stock of the Fairmont 
Coal Company was $12,000,000, and the Consolidation Coal Com- 



Trust Methods 377 

pany acquired $6,000,100. In the year 1902 the output of the Fair- 
mont Coal Company from the 37 mines controlled by it amounted 
to 3,800,000 tons, and it was estimated that the annual capacity 
was 5,000,000 tons. The purchase was made by the Consolidation 
Coal Company from Messrs. A. B. Fleming, S. L. Watson, J. E. 
Watson, C. W. Watson, and J. H. Wheelwright (Minutes of the 
Consohdation Coal Company), and by this latter purchase the 
Consolidation Coal Company acquired control of all the properties 
of the Fairmont Coal Company. 

By its ownership of 52 per cent of the capital stock of the Con- 
solidation Coal Company (p. 973) the Baltimore and Ohio Rail- 
road Company controls all of the property and mines of that com- 
pany, including the railroad of the Cumberland and Pennsylvania 
Railroad Company, and in addition it controls all of the proper- 
ties and mines of the Fairmont Coal Company and its subsidiary 
companies, and also the Metropolitan Coal Company, a retailer 
of coal at Boston, and the Northwestern Fuel Company, a dis- 
tributor of coal on the Great Lakes. 

Exhibit 4 
american sugar refining company * 

Mr. Garrett. Will you give us the story of that in your own 
way — the transaction through Mr. Kissel in regard thereto and the 
entire story. 

Mr. Segal. The Pennsylvania Sugar Refinery consisted of 
$3,000,000 of bonds and $5,000,000 of stock. Five hundred 
thousand dollars of those bonds should remain in the treasury, 
$2,500,000 of the bonds should be sold. But those bonds were not 
expected to sell at par, and those bonds had been sold at a figure 
and the stock as a bonus. 

Mr. Segal. No; as a bonus with the bonds. None of the stock 
has been sold. We started to build that refinery, and I had a hard 
time to sell the bonds, because whenever I went or my people went 
to sell some of the bonds something happened that we were stopped. 

Mr. Garrett. What would happen? 

Mr. Segal. Everything was satisfactory, and within the next 
24 hours they did not want them. 

* Hearings held before the Special Committee on the Investigation of the 
American Sugar Refining Company and others. 62nd Cong., ist Sess. 1910- 
1911, Vol. 2, pp. 1276-1285. 



378 Industrial Combinations and Trusts 

Mr. Garrett. What reasons did they give? Were any reasons 
given to you at any time? 

Mr. Segal. No. 

Mr. Garrett. How many attempts did you make to negotiate 
these bonds when you were checked in that way? 

Mr. Segal. Oh, many times, many times. 

Mr. Garrett. Have you any opinion or information as to why 
everything would be all right now and in 24 hours they would say 
they did not want the bonds? 

Mr. Segal. Naturally I thought somebody did it. 

Mr. Garrett. Did you have any opinion? Give us your opinion 
as to who you thought it was and as to why you so thought. 

Mr. Segal. I thought it came from Mr. Havemeyer. 

Mr. Garrett. And because you thought he wanted to check 
that competition? 

Mr. Segal. Oh, naturally. 

Mr. Garrett. Did you have any other reason than a mere sur- 
mise? Did you see any evidence of his handiwork or the handi- 
work of his agents anywhere in blocking your sales of these bonds 
that you can now recall? 

Mr. Segal. I thought so. 

Mr. Garrett. Could you give the committee any incident that 
occurred? 

Mr. Segal. No; I could not. 

Mr. Garrett. Where did you endeavor to market these bonds? 

Mr. Segal. Oh, in different places. 

Mr. Garrett. In New York? 

Mr. Segal. I had people who did the banking business for me in 
different places. 

Mr. Garrett. New York, I presume? 

Mr. Segal. Yes. 

Mr. Garrett. And Philadelphia? 

Mr. Segal. Yes. 

Mr. Garrett. Boston? 

Mr. Segal. I do not remember. 

Mr. Garrett. Do you know whether any offer was made at 
Boston? 

Mr. Segal. I do not think so. 

Mr. Garrett. Now, go ahead; you had reached the point where 
you said you were blocked in the selling of bonds. 

Mr. Segal. In the meantime, I went on with my work, and I 



Trust Methods 379 

nearly finished that refinery; but I needed money, and I had a 
transaction with a Mr. Kissel, in New York, that had nothing to do 
with the sugar business. 

Mr. Garrett. What character of transaction was that? 

Mr. Segal. He loaned me $250,000 for 60 days. That had 
nothing to do with the sugar business. 

Mr. Garrett. When was that transaction with Mr. Kissel, if 
you please, Mr. Segal? 

Mr. Edmunds. I suppose you want to know with reference to the 
Pennsylvania Sugar Refining Co.? 

Mr. Garrett. No; I want to know with reference to this 
$250,000 transaction. 

About when was that Mr. Segal? 

Mr. Edmunds. I think, if you will pardon a suggestion, if you 
will ask Mr. Segal how long before the $250,000 transaction oc- 
curred he went into the sugar refining company, he may be able 
to answer your question. 

Mr. Garrett. Can you tell me how long before the Pennsylvania 
Sugar Refining Co. deal it was that this $250,000 loan was made 
to you by Mr. Kissel? 

Mr. Segal. Sixty days. 

Mr. Garrett. Sixty days before? 

Mr. Segal. Sixty days before. I borrowed that $250,000 for 60 
days. In the meantime, I went over to New York and spoke to 
Mr. Kissel about buying some of these sugar bonds, and he said 
he was not interested. But five or six days before the $250,000 was 
due, his private secretary called me on the phone and he said, 
*'Mr. Segal, there is $250,000 of yours due in a few days." I said, 
"I know it; I will pay it." He said, "When will you be coming 
over to New York?" I said, "I have nothing to do at present in 
New York." He said, "You come over; Mr. Kissel wants to 
see you." I came over there in a few days, and went over to his 
house, and he told me, "That $250,000 is due." I said, "I know 
it." I said, "Your secretary spoke to me about it, and I will pay 
it." He said, "What are you doing now?" I said, "I am busy." 
He wanted to know how much work I had at that time, and I 
told him I had $6,000,000 or $7,000,000. He wanted to know how 
many men I employed, and I said, "I don't know; probably 2,000." 
That is not all sugar business, you understand. He said, "How 
much money do you need?" I said, "I could use $500,000 or 
$600,000." He said, " Couldn't you use more? " I said, "Probably 



380 Industrial Combinations and Trusts 

$750,000." "No," he said, "for the whole work you are doing, 
you need more money; $750,000 is not enough." I said, " I probably 
could use $1,000,000." He said, "I " I^ don't see how you can get 
on with your work with $1,000,000." I said — well, anyhow, we 
put it down at $1,250,000. He said, "What have you got to put 
up?" He said, "Who has got the control?" I says, "Right 
here." Strange, I just had the control in my pocket. 

Mr. Garrett. The control of what? 

Mr. Segal. Of the sugar refinery. I had it in an envelope. 

Mr. Garrett. You had the bonds? 

Mr. Segal. No; I had the stock. The stock belonged to me. 

Mr. Garrett. The entire stock? 

Mr. Segal. The control. He said, "Who has got control in 
that refinery?" I says, "I have." He said, "Will you be willing 
to put up the control?" I said, "Yes." He said, "What else 
have you got? Have you got some of the bonds?" I said, "I have 
got $500,000 of the bonds." He says, "What have you got in 
the line of the hotel?" I was building a big hotel then. I said, 
"I have got the bonds." He said, " Will you be willing to put up 
those?" I said, "Yes." He says, "For how long do you want that 
loan?" I said, "About six months." He says, "Oh, I wouldn't 
loan it to you for six months. I would loan it to you for two years." 
He said, "I am going away to Europe, and you will be ready to 
pay it and there will be nobody to receive it, and I want to re- 
invest that money. I want to make it for two years." I said I 
would not take it. He said, "Let us make it for one year." I 
said, "We will agree for one year." He said, "Send for your 
lawyer." I said, "I don't want to send for my lawyer." I 
said, "I can fix that thing myself." He said, "I would not do 
it." So I telegraphed for my attorney, and he came over the fol- 
lowing day to New York, and I told Mr. Kissel I would stay over 
the night in New York. The following morning Mr. Kissel came 
over, and he said, "I thought of one thing here. That refinery 
is a new refinery. It is in excellent condition. As long as that 
refinery stands in that condition the security is good, but if you 
should start that refinery and run it, and the Sugar Trust should 
fight you, you will lose money on those bonds and the stock will 
not be the same value as it is to-day. I want you to sign that 
during the period of that loan you should not run that refinery." 
I said, "I will do it." Mr. ELissel had his office in the Mutual Life 
^ Thus in original. — Ed. 



Trust Methods 381 

Building in New York, and he had his safe down there. He said 
to my lawyer, "No; let us go over to my lawyer" — to Mr. Kissel's 
lawyer — and they will fix it up. 

Mr. Garrett. Who was your lawyer? 

Mr. Segal. I want to say to you I will be very glad to give the 
name, but please do not send for the man. The man is dying now. 

Mr. Garrett. Who was Mr. Kissel's lawyer? 

Mr. Segal. My lawyer was Mr. Thomas B. Harned. 

Mr. Garrett. He was your lawyer? 

Mr. Segal. Yes. 

Mr. Garrett. Who was Mr. Kissel's lawyer? 

Mr. Segal. Kissell's lawyer? Mr. Kissel had no lawyer. He 
went to 

Mr. Garrett (interposing). Was it Mr. John E. Parsons? 

Mr. Segal. That is the gentleman he went to. Mr. Kissel 
says, "No; let us go to my lawyer,*' and I took my coat and started 
to go with him, and Mr. Kissel said to me, ''You stay right here 
and we will go over." They went away and they came back in 
about 15 minutes, and Mr. Harned said, ''Mr. Segal, Mr. Kissel 
took me to Mr. Parsons, and Mr. Parsons is doing a great deal 
of work for the Sugar Trust, and I want you to know it." I said, 
"What does that mean?" He says, "Mr. Parsons represents 
dozens of corporations. I want to say to you the securities I will 
get from you will be in my safe and in my building until you take 
them out." I said, "All right." 

Mr. Garrett. That was ICissel talking? 

Mr. Segal. That was Mr. Kissel. We made a contract. 

Mr. Garrett. Will you state what that contract was? 

Mr. Edmunds. Have you the contract, Mr. Garrett. You might 
submit that to him and ask whether or not that is the contract. 

Mr. Garrett. Will you examine this contract, Mr. Segal, Ex- 
hibit L to the bill filed by the Government in the southern district 
of New York against the American Sugar Refining Co. and others, 
and state whether that is the contract which you entered into 
with Mr. Kissel? 

Mr. Segal (after examining the document) . That is the contract. 

Mr. Garrett. Mr. Chairman, I wish to have the stenographer 
incorporate this contract. Exhibit L, in the record at this point. 

The Chairma-N. Mr. Stenographer, you will copy that contract 
in the record at this point. 

The Committee will take a recess at this time imtil half past 



382 Industrial Combinations and Trusts 

2 o'clock this afternoon, at which time, Mr. Segal, we wi\l resume 
your examination. 

testimony of adolph SEGAL — Continued 

Mr. Garrett. Mr. Segal, just preidous to the adjournment for 
luncheon you had identified Exhibit L to a petition filed by the 
United States of America against the American Sugar Refining 
Co. and others in the Circuit Court of the United States for the 
Southern District of New York as an agreement or contract be- 
tween Mr. Kissel and yourself, touching the matter of a loan 
about which you had pre\dously testified. I want to ask you when 
you first learned that the money loaned you under that agreement 
came from the American Sugar Refining Company. 

Mr. Segal. Probably six weeks or two months afterwards. I 
dined with Mr. Kissel, and he joked, and he mentioned many times 
Mr. Havemeyer. I says, "^Ir. Kissel, I think that money com_es 
from the Sugar Trust." He says, " WTiat is the difi"erence? Suppose 
it does come from them?" It was probably six weeks or two 
months after the loan was made. 

Mr. Garrett. Six weeks or two months after the transaction? 

Mr. Segal. Yes. 

Mr. Garrett. Well, I understood you to say that when you 
learned, while these negotiations were pending there in New 
York 

Mr. Edml^nds. No; excuse me; negotiations vrere not pending. 
They had been consummated. They were in New York for the 
purpose of signing the papers. 

Mr. Garrett. Just about the time you signed the papers you 
learned that Mr. John E. Parsons was connected with the matter? 

Mr. Segal. Oh, no. 

Mr. Garrett. When did you first learn that? 

Mr. Segal. I understood that Mr. Parsons was Mr. Kissel's 
lawyer. 

Mr. Garrett. When did you first learn that? 

Mr. Segal. When we talked of the deal. 

Mr. Garrett. About the time you began the negotiations? 

Mr. Segal. Yes ; and it suddenly came over me. 

Mr. Garrett. And you made some inquiry? 

Mr. Segal. No; I said to Mr. Kissel, ''Is not Mr. Parsons the 
Sugar Trust's la\vyer?" Mr. Kissel said, "Why, he represents 



Trust Methods 383 

dozens of other parties; and the best proof of it is that the securities 
will be with me." 

Mr. Garrett. I assume that when Mr. Parson's ^ name was 
mentioned, and you learned that he was Mr. Kissel's lawyer, it 
immediately aroused your suspicion that it might be this money 
came from the Sugar Trust? 

Mr. Segal. Yes. 

Mr. Garrett. And did the statement of Mr. Kissel, which you 
have mentioned, disarm your suspicions in that regard? 

Mr. Segal. Yes. 

Mr. Garrett. And you made no further inquiry in that respect? 

Mr. Segal. Yes; I had a transaction with Mr. Kissel before of 
$250,000. 

Mr. Garrett. Did you suppose that he was loaning his own 
money, or that he was agent for some one else? 

Mr. Segal. I thought he was able. His wife is a Vanderbilt, 
and I thought they were able to do it. 

Mr. Garrett. You got the money, then? 

Mr. Segal. Yes; I got the money in installments. 

Mr. Edmunds. You will notice from the agreement that $200,000 
of the $1,250,000 was to be retained for the purpose of completing 
the Majestic Apartment House, which Mr. Segal was then in the 
course of building and which was nearing completion. 

Mr. Garrett. It was to be paid out of that. I understand Mr. 
Segal says so. You got the money in accordance with this agree- 
ment? 

Mr. Segal. Yes. 

Mr. Garrett. What commission did you pay Mr. Kissel? 

Mr. Segal. $100,000. 

Mr. Garrett. $100,000 commission? 

Mr. Segal. Yes. 

Mr. Garrett. Do you know whether he got any other commis- 
sions than that? 

Mr. Segal. I do not know. 

Mr. Garrett. You do not know how that was? 

Mr. Segal. No, sir. 

Mr. Garrett. That was all you paid him? 

Mr. Segal. Yes. 

Mr. Garrett. Now, take up the thread of the story from that 
point on, will you, and in your own way relate it to the committee? 
1 Thus in original. — Ed. 



384 Industrial Combinations and Trusts 

Mr. Segal. After that I had some other transactions with 
Mr. Kissel. 

Mr. Garrett. Touching the same matter? 

Mr. Segal. No. 

Mr. Edmunds. I suppose you want the witness to confine his 
statement to matters that relate to the sugar refinery, do you not? 

Mr. Garrett. Yes; directly or indirectly. Perhaps those trans- 
actions with Mr. Kissel may become important. We will see. 

Mr. Segal. Then I paid the interest, after 90 days. I paid the 
interest quarterly, every three months. 

Mr. Garrett. You paid the interest quarterly? 

Mr. Segal. Yes. 

Mr. Garrett. Let me get that. Did you, at the time you closed 
the contract, pay interest for three months? 

Mr. Segal. When I wanted to sell some bonds, I could not; I 
could not sell any more, for the reason that the matter came up and 
then they asked w^hen I was going to start the refinery, and then I 
had to tell them about that contract, and nobody would want to 
buy bonds when the plant was in such condition that it could not be 
started up. 

Mr. Garrett. When was it that you undertook to sell the bonds? 

Mr. Segal. Right away after that. I had some other bonds — 
$1,500,000 of bonds of that institution. 

Mr. Garrett. Was it shortly after you borrowed this money 
that you undertook to sell the bonds? 

Mr. Segal. The balance of the bonds? 

Mr. Garrett. The balance of the bonds. 

Mr. Segal. Yes. 

Mr. Garrett. How long after? Do you remember about how 
long it was? 

Mr. Segal. Probably a few months. 

Mr. Garrett. A few months. Now, going back for a moment; 
at the time you borrowed the money you paid interest in advance 
for three months, did you? 

Mr. Segal. I do not think so; no. 

Mr. Edmunds. The agreement did not call for it. 

Mr. Garrett. At the end of the first quarter you did pay 
interest? 

Mr. Segal. Yes. 

Mr. Garrett. Was that for the past quarter? 

Mr. Segal. Yes; for the past quarter. 



Trust Methods ' 385 

Mr. Garrett. You paid the interest quarterly? 

Mr. Segal. Yes, sir. 

Mr. Garrett. When did you pay the commission? 

Mr. Segal. The commission was taken out. 

Mr. Garrett. Was taken out of the loan? 

Mr. Segal. It was taken right out at once from the money. 

Mr. Garrett. All right. Now, go ahead. 

Mr. Segal. Then I tried to repay that loan, and I went to Mr. 
Kissel, and I wanted to know if Mr. Kissel would not divide that 
loan. 

Mr. Garrett. Was that at the time you wanted to sell the 
bonds? 

Mr. Segal. Yes. 

Mr. Garrett. Well, go on. 

Mr. Segal. I wanted that he should divide the sugar securities 
from the other securities, and he could not do it. He said that it 
could not be done. I made him different propositions, and it was 
too much for me to plank over $1,250,000 at one clip, and I thought 
if he would divide that in half it would be easier for me to pay it; 
but the reply was that that could not be done. 

Mr. Garrett. That that would not be done? 

Mr. Segal. Could not be done. 

Mr. Garrett. Could not be done? 

Mr. Segal. Yes. 

Mr. Garrett. Why could it not be done? Did he say? 

Mr. Segal. No. 

Mr. Garrett. Was this subsequent to the time that you had 
learned that this money came from the American Sugar Refining 
Co.? 

Mr. Segal. That was afterwards; yes. 

Mr. Garrett. It was after you had learned that the money 
came from the American Sugar Refining Co.? 

Mr. Segal. Yes. 

Mr. Garrett. What did you do next? 

Mr. Segal. Well, I tried different ways to get those securities 
out and I could not. 

Mr. Garrett. After he told you that he could not divide the 
securities, were there any further negotiations with him — any other 
offers made to him? 

Mr. Segal. Oh, I made him different piropositions. 

Mr. Garrett. Well, what were those propositions? 



386 Industrial Combinations akd Trusts 

Mr. Segal. I offered to pay him $100,000 as a premium if he 
would let me run the refinery. 

Mr. Garrett. If he would let you run it? 

Mr. Segal. Yes. 

Mr. Garrett. About what time was that T\dth reference to the 
loan — about how many months after you had borrowed the money? 

Mr. Segal. Oh, probably four or five months. 

Mr. G.ARRETT. And he refused that offer? 

Mr. Segal. He refused that offer. 

Mr. Garrett. Well, go ahead. 

Mr. Segal. Well, that is the way it went on until the end of the 
year. I paid, three times, interest; three times I made the payment 
of interest; and the fourth one, I offered the money pro\dding he 
would give me the coupons back from the bonds, and he did not 
w^ant to do that. 

Mr. G.AJiRETT. Did he refuse to do it? 

Mr. Seg.al. He refused to give me the coupons, to detach the 
coupons from those bonds. 

Mr. G.Aj^ETT. Why? Did he say? 

Mr. Segal. He said, " Because, when we settle, you will have the 
coupons with them; but at present I will not give them up." 

Mr. Garrett. Go ahead. 

Mr. Edmunds. I suppose you understand that he refers to the 
coupons attached to the Pennsylvania Sugar Refining Co.'s bonds, 
and not to the others? 

Mr. Garrett. Yes; I so understand. Go ahead, Mr. Segal. 

Mr. Segal. Well, I think that is the end of the story. 

Mr. Garrett. What occurred then T\dth your business matters, 
after he had refused to do that? What sort of situation did you 
find yourself in, as a result? 

Mr. Segal. I found myself in difficulties. I had different works 
going on, and I could not raise money; and then Mr. Hippie com- 
mitted suicide, and that was the end of the whole thing. 

Exhibit 5 



Mr. Gary. Mr. Chairman, the question, as it seems to me, opens 
up a consideration of what has been referred to as proceedings at 

^ Testimony of Judge Elbert H. Gary. Hearings before the Committee on 
Investigation of United States Steel Corporation, 62nd Cong., 2nd sess. 191 1- 
1912, pp. 75-77, 262-274, 279-281. 



Trust Methods 387 

some of the dinners, as well as a proposed international iron and 
steel institute; and with the permission of the committee I will en- 
deavor to state, as briefly as I can, exactly what is involved in the 
whole subject matter, intending to show what we have done and 
what our intentions have been and are. 



Now, I need not suggest to lawyers, at least on the committee, 
and perhaps you are all lawyers, I do not know about that, that the 
interpretation of the Sherman Act has been more or less involved 
in doubt. Evidently the act was intended to prevent the existence 
and exercise of monopoHes and also the restraint of trade. A com- 
pany Hke the United States Steel Corporation, with 50 per cent of 
the domestic steel business of this country, was confronted with two 
propositions. It had no right to endeavor to prevent reductions in 
prices, or, in other words, to maintain the equilibrium of business 
and maintain prices substantially level or at least free from sudden 
and violent fluctuations by means of any sort of an agreement ex- 
press or implied. We had no lawful right, as I understand, to make 
any agreement, express or implied, directly or indirectly, with our 
competitors in business to maintain prices, notwithstanding we 
were receiving letters daily from the jobbers all over the country 
begging us, if possible, to prevent demoralization and to prevent 
decrease in prices which should mark down their inventories and in 
many cases subject them to the risk of bankruptcy. On the other 
hand, considering this same question of sustaining, so far as practi- 
cable, the equilibrium of trade, we believed we had no moral or 
legal right to become involved in a bitter and destructive competi- 
tion, such as used to follow any kind of depression in business among 
the iron and steel manufacturers, for the reason that if we should go 
into a competition of that kind it meant a war of the survival of the 
fittest; it meant that a large percentage, as in old times, of the peo- 
ple engaged in the manufacture of steel would be forced into bank- 
ruptcy for many reasons — their facilities for manufacture were not 
so good, their cost of production was high, their equipment, their 
organization, their decreased ownership of some of the raw products 
and other things of that kind which enter into the cost of production, 
would place them at a disadvantage, and therefore it was believed, 
by me at least, that it was not for the best interests of the manufac- 
turers generally or for their customers who desired stability as op- 
posed to demoralization and wide fluctuations or for the employees 



388 Industrial Combinations and Trusts 

of the various corporations throughout the country who desired, 
so far as possible, steady work — continuous work at the best prices, 
and a wide, sudden, extreme lowering of prices necessarily meant 
reduction in the wages. Reductions were advocated almost at the 
start of the panic of 1907, and many of you know that our company 
took a leading part in opposing that and we went through that 
panic without making any reduction in wages, although many, if 
not all, of our competitors before the year was terminated did ma- 
terially reduce their wages. 

Now, the question was how to get between the two extremes of 
securing a monopoly by driving out competition, however good- 
naturedly, in a bitter, destructive competition or without making 
any agreement, express or implied, tacit or otherwise, which should 
result in the maintenance of prices, and so, gentlemen, I invited a 
large percentage of the steel interests of the country to meet me at 
dinner and then presented these views to them and, so far as I could, 
the results of our becoming demoralized and extreme decreases in 
prices like those which obtained imder the old regime. Then, I said 
that it seemed to me the only way we could lawfully prevent such 
demoraUzation and maintain a reasonable steadiness in business, 
whether we lowered the prices from time to time or not, whether 
depending upon circumstances we were wilHng to make concessions 
or reductions after the jobbers had relieved themselves of the large 
lots, so as to prevent demoralization, was for the steel people to 
come together occasionally and to tell one to the others exactly 
what his business was. In other words, a disclosure by each one to 
all others of all the circumstances surrounding his particular busi- 
ness. In other words, to state it simply, if three men, gentlemen on 
this committee, were practicing law in a certain town and each one 
knew that the customary fee for services in court was $50 a day and 
a gentleman from another part of the country should locate in that 
town and make a totally different price, very much lower, he w^ould 
immediately get up some sort of competition amongst these pro- 
fessional men. If those three men, however, on this committee, 
were in daily conference and each one knew that the others did not 
propose to change the fees, probably this outsider would not make 
very much headway in creating a demoralization. 



Mr. Beall. Judge, I am interested in the statement that you 
made about these dinners. Were they called "the Gary dinners?" 



Trust Methods 389 

Mr. Gary. I have seen some of the papers designate them in that 
way. 

Mr. Beall. About what date did you begin to have these 
dinners? 

Mr. Gary. During the panic of 1907, or just following. I think 
during it — ^before the panic was over. May I inquire whether you 
were present when I described that the other day — the first dinner 
given — when the steel people 

Mr. Beall. Since 1907 have these dinners been held at any stated 
ntervalSji or have they been at such times as suited your conven- 
ience? 

Mr. Gary. They have been given at such times as suited my con- 
venience and disposition, and public announcement has been made 
in each instance and what took place at the dinners. If there was 
any question of business referred to, it has been given to the public 
press. Latterly, for some time — in fact, the major part — there 
have not been so very many dinners as you might think; but at 
most of the dinners what I said was taken down and written up and 
printed, and I have promised the committee, at their request, to 
furnish these printed speeches. At two of the dinners everything 
that was said was taken down. It happened so ; and, as it was taken 
down, I had it written up and printed and distributed to those who 
were present — so that every thing that was said there was taken 
down. At one of those dinners the question of prices, or the question 
of markets, or what ought to be done was stated fully and freely 
by all of them, and all of us must abide by the record which we 
made. There is no concealment about it. There never has been. 
We will furnish those to the committee. 



Mr. Gary. There is just one question involved in those dinners, 
it seems to me: That is whether or not it is lawful, and is good law 
and good morals, to endeavor by intercourse such as you see de- 
scribed in those proceedings to maintain to a reasonable extent the 
equilibrium of business, to prevent utter demoraHzation of business 
and destructive competition. 

Mr. Beall. That was the purpose of each one of those dinners? 

Mr. Gary. That and nothing else. 

1 Thus in the original. — Ed. 



3 go Industrial Combinations and Trusts 

The Chairman. I know; but I mean to advise the gentlemen that 
this committee will not look into anything more than his official 
acts. 

Mr. Gary. Prices were not attempted to be fixed, were not fixed, 
could not be fixed, and there was no possible way of fixing them or 
maintaining them, unless you have some way of having them fixed 
under Government control, or you are allowed to do it by positive 
agreements. It never has been possible. It never could be possi- 
ble. We have never succeeded in doing so. But we have, by this 
friendly intercourse, prevented demoralization — sudden, wild, ex- 
treme fluctuations — destructive competition that would drive 
large numbers of them entirely out of business, and that would be 
ruinous to the customers of the steel people who had large stocks of 
goods on hand from time to time, and which would spread to other 
lines of industry. We have made no secret about it, and the public 
has known exactly what we have done; and if the Department of 
Justice, for instance, or the President, or Congress, should say, 
"This is not the wise thing to do or the right thing to do," you may 
be certain it would not be continued for one moment. 

Mr. Beall. As I understand it, you wanted to avoid destructive 
competition on the one side, and you wanted to avoid the perils and 
the dangers of the Sherman antitrust law on the other side? 

Mr. Gary. Of monoply on the other side? 

Mr. Beall. Of monopoly, unlawful restraint of trade; and you 
have resorted to this means of bringing together those interested in 
the business for an exchange and interchange of views at these 
dinners? 

Mr. Gary. Not so much an interchange of views as a statement 
of the conditions surrounding each one. 

Mr. Beall. I will ask you about this particular dinner of Jan- 
uary II, 1911. 

Mr. Gary. Of course the proceedings speak for themselves. 

Mr. Beall. Yes. Was not the purpose of that dinner to arrive, 
directly or indirectly — probably the latter — at an understanding 
that prices would not be reduced or lowered? 

Mr. Gary. Emphatically, no; it was not. 

Mr. Beall. Let me call your attention to some of the things that 
were said. 

Mr. Gary. By me? 

Mr. Beall. By you and by others who participated in the dinner. 

Mr. Gary. Very well. 



Trust Methods 391 

Mr. Beall. And I would like to have your interpretation of what 
it means. 

Mr. Gary. What is the date? 

Mr. Beall. January 11, 191 1. 

Mr. Gary. Very well. 

Mr. Beall. Look first at page 6, about the middle of the page. 
I read as follows: 

At this particular time there is not in this country a demand for more than 
50 per cent of the total producing capacity in our lines. It is obvious from this 
statement of fact that there is not enough business to go around and that there 
is no possible way of protecting one another and thereby protecting oneself 
except to submit ourselves to the conditions as they exist and to take and be 
satisfied with our fair proportion of the business which is offered. [Applause.] 

What did that mean, Judge Gary? 

Mr. Gary. It meant to say that any fair-minded man, knowing 
there was only 50 per cent business as compared with the capacity, 
would believe it to be for his own interest to be satisfied with his 
mills running at one-half their total capacity, as otherwise he would 
be necessarily involved in a competition that meant the survival of 
the fittest, every one struggling to get more than 50 per cent of 
capacity, and bringing about demoralization and ruin. 

Mr. Beall. At that time were the mills that these different gen- 
tlemen represented who were at the banquet, running only 50 per 
cent of their capacity? 

Mr. Gary. No; on the contrary some were running, as usual, 
about 40 per cent, and some were running about 60 per cent; and 
it has been that way all the time, more or less. There is no possible 
way of controUing. Of course, that is my advice. I wish everyone 
would recognize the fact that that is what he ought to do, but he is 
not willing to do that. He is under no obligation to do that. And 
you will see, as I go on, that I state clearly under no circumstances 
would I bind myself to do or not to do' anything; that everyone 
must be left free to do as he pleases. That I understand to have 
been the position of the Attorney General in his argument before 
the Supreme Court of the United States, that the law does not com- 
pel people to compete. If everyone leaves himself free to compete, 
then he is living up to the requirements of the law. At the same 
time, I w^ould not hesitate to advise my associates to be satisfied 
with their fair share of business. That advice has been followed to 
some extent. But, as no one was bound in any way, never had to 
do it, they did not live up to the principle. That is the trouble. 



392 Industrial Combinations and Trusts 

Mr. Beall. All through the proceedings of that dinner, Judge, 
does not the thought run that all those who are present are in honor 
bound to accept and to abide by that price? 

Mr. Gary. I do not think you can connect the two statements. 

Mr. Beall. On May 4, 191 1, at the Waldorf, in New York, you 
had a banquet? 

Mr. LiNDABURY. Is that in this same book? 

Mr. Beall. No; it is in a different book. I refer to page 27. 

Mr. LiNDABURY. That is the last meeting? 

Mr. Beall. It is May 4. 

Mr. LiNDABURY. Of what year? 

Mr. Beall. 191 i. 

Mr. Gary. And what page do you read from? 

Mr. Beall. Page 27. I read as follows: 

You know I do not say that for the purpose of deceiving you at all nor for any 
purpose except to let you know exactly what I am doing. And, therefore, as I 
have said before, gentlemen, we come together upon a platform that involves 
the honor of a man, which is far better and far higher and far more binding 
upon us than any contract which we could make. 

Mr. Gary. Yes. Now, I would think, if I should meet you, a 
competitor of mine, on the street, and ask you what prices you are 
charging and to what extent you are running your mills, and I 
should tell you what I was doing, both of us being perfectly frank 
and neighborly, and then I should leave you and go to one of your 
customers and offer to sell him goods at a less price than you told me 
you were selHng at, that would be most dishonorable conduct on 
my part, and that I would have a reason to expect, as honorable 
men, you and I having told one another what we were doing, that 
we would not go and do something to the contrary of that to the 
prejudice of either one, without telling him so frankly. That is 
what I meant and that is what I have explained from time to time. 

Mr. Beall. Then I quote further from this speech of January 11, 
191 1, on page 7: 

I say in this presence to men who know by long experience — men who know to 
a demonstration that what I speak is true and logical — that we have something 
better to guide and control us in our business methods than a contract which 
depends upon written or verbal promises with a penalty attached. 

Now, if you made that sort of a contract, you would violate the 
Sherman antitrust law, would you not? 
Mr. Gary. Yes, we would; but we have something better. 



Trust Methods 393 

Mr. Beall. You have something that is better even than a prom- 
ise in writing, with a penalty attached? 

Mr. Gary. I do not say that it is more binding than a contract. 
That is quite a different thing. 

Mr. Beall. Something better to guide you. You say — 

We have something better to guide and control us in our business methods 
than a contract — 

Mr. LiNDABURY. Now, will you let Judge Gary tell what that is? 
Mr. Beall (continuing): 

Than a contract which depends upon written or verbal promises with a 
penalty attached. We as men, as gentlemen, as friends, as neighbors, having 
been in close communication and contact during the last few years, have reached 
a point where we entertain for one another respect and affectionate regard. We 
have reached a position so high in our Hues of activity that we are bound to 
protect one another. 

Judge, in all these dinners, in all these speeches made at this ban- 
quet on January 11, 191 1, does not the thought run through there 
that without entering into any written obligation or contract, or 
making any agreement that would put the hand of the Sherman law 
on you, you were in honor bound to observe 

Mr. Gary. To do what? 

Mr. Beall. To cooperate? 

Mr. Gary. Well. 

Mr. Beall. In such a way as to protect each other against any 
reduction in prices? 

Mr. Gary. Not at all. It does not mean that at all; not at all; 
because we had no fixed prices. We have never said that our prices 
would be a certain thing, and they have not. Our prices have 
fluctuated all the time. There has never been the time that our 
prices remained the same, or have been all alike; never, not for a 
single day, so far as I know. We have attempted in this way — I 
have attempted, I will say, and others have attempted by this in- 
fluence — to prevent this utter demoralization which results from a 
disposition on the part of everyone to go and get all the business he 
can, and at any price he can, regardless of whether it is fair and 
reasonable, whether it is below cost or not, whether it would destroy 
his neighbor and drive him out of business; a disposition to let one 
another know what we are doing with a view of trying to persuade 
everyone to keep the price up to what he thought ought to be rea- 
sonable and fair. Is it against any law for me to go to you, a com- 



394 Industrial Combinations akd Trusts 

petitor in business, and say to you, "Your prices, I tliink, ought to 
be higher than they are," or "ought to be lower than they are"? 
If you leave yourself free to make them as you please, or if I do, we 
do not violate the law. I have a right to tell you. We have never 
said, never intimated, that the prices should be so and so, and each 
one of us should keep these prices; never directly or indirectly. 

Mr. Beall. Have you not impressed on them time after time 
that it would be the grossest breach of honor for them to cut their 
prices below a competitor? 

Mr. Gary. No, I have not; never a word. You will never find 
such a suggestion as that. 

Mr. Beall. I read from page 7, again: 

We have reached a position so high in our lines of activity that we are bound 
to protect one another; and when a man reaches a position where his honor is at 
stake, where even more than Hfe itself is concerned, where he can not act or fail 
to act except with a distinct and clear understanding that his honor is involved, 
then he has reached a position that is more binding on him than any written or 
verbal contract. [Applause.] 

Why were you seeking so strenuously to impress upon them that 
their honor was involved in some kind of way? 

Mr. Gary. So that we, coming together, disclosing our business, 
telling one another about to what extent we are running our mills, 
about how our business was going generally, what our customers 
were, what our difficulties were, ha\'ing made those full disclosures, 
so that everyone would reach the decision, if possible, that he ought 
not to do a mean thing in the trade, in competition; in other words, 
so that competition should be honorable, decent, and reasonable, as 
opposed to bitter, hostile, destructive competition such as used to 
exist. 

Mr. Beall. Did you not think that the meanest thing that any 
of them could do would be to reduce prices? 

Mr. Gary. I should think, Mr. Beall, if you had a client and I 
had a cHent, consulting you and me both professionally, going to 
you and asldng you what you would charge him, and you told him 
$100, and then you should come to me and say, "That gentleman, 
my old client, has been in my oflSce and asked me how much I 
would charge him, and I told him $100" — I having gotten that in- 
formation from you, I should think if I should say to him when he 
came to my office, he belie^dng I was as competent as you, that I 
would do it for $90, that would be dishonorable; that is what I 
think about it, m.03t certainly, unless I went to you and said: "Now, 



Trust Methods 395 

you told me you said you would do this for $100, and I want to do 
it for less than that, and I will charge him only $90." 

Mr. LiNDABURY. I want to call attention to the fact that this 
was simply a strenuous endeavor to establish the golden rule, and 
that it ought to be encouraged. 

Mr. Beall. The steel rule. 

Mr. LiNDABURY. No, the golden rule. 

Mr. Beall. A resort to moral suasion. I quote again from 
page 9: 

Why do I mention these things? From the abundance of the heart the mouth 
speaketh. These thoughts in my mind, in my heart, force expression. I deal in 
frankness. Why is it? Why are these thoughts in my mind? Why do they 
crowd into words? Because at this particular time I am anxious that no man 
around this table, no one connected with this business shall, for a single moment, 
forget the high moral obligation he is under toward his neighbor. 

Mr. LiNDABURY. That is right. 
Mr. Beall (continuing reading): 

Because if it was the last word I would have the privilege of saying to you, I 
would say, with all my might and with all the emphasis that I could find words 
to express, I consider it of the highest importance at this particular time that 
every one of us should have a keen and abiding sense of the personal obligation 
which he has toward all others and to make no mistake of running the risk of 
trespassing within the domain of the rights of his neighbor, who has given his 
confidence and trust, and who is willing at all times to put within the knowledge 
and therefore more or less under the charge and control of others the very 
direction of his affairs. 



Mr. Beall. Mr. Farrell is, I believe, president of the United 
States Steel Corporation now? 
Mr. Gary. Yes, he is. 
Mr. Beall. He made a speech that night? 
Mr. Gary. I believe he did. 
Mr. Beall. Let me quote from that. I read from page 14: 

I understand the policy of the corporation to be to cooperate with its com- 
petitors in the effort to maintain fair prices 

Mr. Gary. Well, that means 

Mr. Beall (continuing): 

and the stability of business conditions, by every means permissible under the 
laws of the country and not antagonistic to the public conscience. 

That gives you the full quotation. 

Mr. Gary. Yes. That means in the way I have stated, and no 



396 Industrial Combinations and Trusts 

other way. The answer to your inquiry is found in the fact that 
prices have not been maintained. You Avill find in some of those 
speeches a statement by me, perhaps repeatedly, that I have never 
stood for imchanged or unchangeable prices; that that is not my 
position. And there have not been unchanged prices. They have 
been more or less changed all the time. That is not the point. The 
point is to try and prevent the kind of bitter, destructive, unfair, 
and unreasonable competition that demoralizes business, and 
drives to destruction many of the operators, of the manufacturers 
and their customers. 



Mr. Beall. Mr. WiUis L. King spoke also at this last banquet? 

Mr. Gary. Yes. 

Mr. Beall. Let me quote something from him. Who is Mr. 
King? 

Mr. Gary. Mr. King is the vice president and general manager 
of the Jones & Laughlin Co. of Pittsburg. 

Mr. Beall. A steel manufacturer? 

Mr. Gary. Yes. 

Mr. Beall. Quoting from page 21, he said: 

I think, therefore, to talk of reducing the prices ought not to be considered 
for a moment. As Judge Gary has very properly said, it would not result in 
good to anyone. It would not result in more business to us, it would not do the 
pubhc any good; therefore I hope it will be the consensus of opinion here to-night 
that we will maintain the present prices, which are fair and reasonable, and 
await with patience the inevitable result, which will of course be better business, 
and I think in the very near future. 

Mr. Gary. No doubt that was his hope and his wish and his 
advice, but it was not binding, and therefore w^as not fully accepted 
nor adopted. 

Mr. Beall. Was it not the consensus of opinion there that night, 
Judge, among all those who spoke? 

Mr. Gary. You have there everything that was said by all who 
spoke, and speeches speak for themselves. 

Mr. Beall. Probably the entire speeches will not be in the 
record, but you were there. 

Mr. Gary. They are, Mr. Beall; every word that was said. 

Mr. Bartlett. You mean in that book? 

Mr. Gary. Yes, I mean in this pamphlet of January 11. Every- 
thing that was said at the dinner, \\dthout exception, by every 



Trust Methods 397 

speaker is there; not. a word is left out, and these gentlemen had no 
opportunity to revise their speeches; not a particle changed; nothing 
added; nothing left out, 

Mr. Beall. Was not the dominant thought running through all 
these speeches of these gentlemen who were there that it should be 
the consensus of opinion among them that there should be no low- 
ering of prices? 

Mr. Gary. The speeches speak for themselves. 

Mr. Beall. You have read them. What is your opinion? 

Mr. Gary. I do not think that is a fair, just opinion of the 
speeches. 

Mr. Beall. That is the very reason I wanted you to express 
your opinion, because I did not want to express mine, because it 
might not be fair. 



Mr. Gary. I do not think so, although I feel certain that it was 
the wish and the hope of everyone that prices would not be reduced. 
Now, it would be very strange if in the speeches made by these gen- 
tlemen, with no opportunity to prepare, and with that hope and 
wish in their minds, they would use expressions which you would 
think meant that it was intended to maintain prices. But you will 
not find in any of the meetings any agreement of the kind. I have 
not attempted here to disguise the fact, Mr. Beall, that the object of 
these meetings was to get between the extremes of the restraint-of- 
trade clause and the monopoly clause and in this way to prevent, so 
far as we could legitimately, a demoralization of business and de- 
structive competition; but there is nothing in any of these speeches 
to indicate that there was any agreement, express or implied, to do 
or not to do a thing, any suggestion that each one was bound to 
maintain certain prices, or to fix certain prices, or anything of the 
sort. The contrary of that was the intention. 

As to whether or not this is a good thing to do, as to whether or 
not this is good morals, as to whether or not you gentlemen believe 
that it is better to enter into a destructive competition of the old 
kind than to try and maintain the equilibrium of business by this 
kind of cooperation, is for you to say. I am very sure if you want to 
take the responsibility as legislators and as lawyers and judges, if 
you want to take the responsibility or if the Government or any- 
body else in authority wishes to take the responsibility of sa3dng 
it is better to enter into a destructive competition, and for the steel 



398 Industrial Combinations and Trusts 

people to have nothing whatever to do with one another, not even 
give one another information of any sort or description, letting the 
business take care of itself and allowing the strongest to survive 
and the weakest to go dow^n and the general demoralization which 
would naturally result in business, generally, to follow, then we 
have nothing to say; we would not oppose it for one moment; not 
a moment. We have done what we have considered best to be done 
for the interests of all concerned, and within the Unes of the law as 
we understand it. 

Mr. Beall. As I understand it. Judge, you are frank enough 
to say that through the medium of these dinners you have sought 
to accomplish the same result that would be accomplished by miak- 
ing agreements among yourselves that w^ould be unlwaful,i to a 
greater or less degree? 

Mr. Gary. I have not said that, but I have said that we have, so 
far as we could, attempted to prevent demoraHzation and destruc- 
tive competition. We have not been successful, but we have been 
successful to a large extent. 

Mr. Beall. Quoting now from Mr. Felton, on page 22, he says: 

Now, I think we have all had oiir eyes opened since the first meetings that 
were held here, and I hope we are going to keep our eyes open, and are not going 
to shut them up to the situation. If there is anybody who thinks the present 
business situation will be improved, stimulated, by cutting prices, he ought to 
consider just one branch of our business; he should look at the facts and argue 
from those facts. 

Then he takes up the pig iron situation. 
Mr. Gary. Yes. 

Mr. Beall. Who is Mr. Topping, whose speech appears on 
page 23? 

Mr. Gary. He is chairman of the Republic Iron & Steel Co. 



Mr. Beall. I read from what Mr. Topping said, on page 23: 

I am more convinced than ever that any efforts at this time to reduce prices 
with a view to stimulating consumption will be met in about the manner that 
Mr. Felton has illustrated. 

Mr. Gary. Who says that? 

Mr. Beall. Mr. Topping. He continues: 

The price line will go down much faster than the production line will go up. 

^ Thus in original. — Ed. 



Trust Methods 399 

Mr. Gary. He has evidently changed his mind recently. 

Mr. Beall. He has made a reduction in the prices of the products 
of the Republic Iron & Steel Co.? 

Mr. Gary. Yes; and for the announced reason that some of the 
people manufacturing some of his products began to cut their 
prices, and, of course, he assumed he had nothing left to do but cut 
his. Three ^ is quite a difference in one man going to another and 
saying to him, ''My prices are so and so;" and then going out and 
selhng at a lower price, and on another occasion going to his neigh- 
bor and saying, ''My prices are so and so, and I think they are too 
high, and I can not maintain them on account of the competition 
I have and I am going to cut them to suit myself." Then it is not 
dishonorable for him to do what he pleases. But I do not think it 
is fair or honorable for business competitors to represent to one 
anotl;er that they are doing certain things which are entirely con- 
trary to the facts; and there is nothing Hke pubHcity among decent 
men — that is, the disclosure from one to another of exactly what 
they are doing — to secure a reasonable maintenance of prices. Of 
course, circumstances arising day by day may change circumstances; 
but in the main the prices are pretty well maintained. 

Mr. Beall. After that luncheon you held a few days ago, you 
gave out a statement? 

Mr. Gary. I made a public announcement of what we were going 
to do. 

Mr. Beall. Substantially, that it was the opinion of the gentle- 
men who were at that luncheon that the prices of their various 
products should be reduced to meet this cut made by the Repubhc 
Steel & Iron Co.? 

Mr. Gary. I think not. If you have got it, read it, and I think 
it will speak for itself. 

Mr. Bartlett. I do not say that it bears that out, but I have 
what purports to be a press dispatch, published in a paper in Macon, 
Ga., and I will read you what is said. 

Mr. Young. Will you not speak a httle louder. Judge? 

Mr. Bartlett. I say that I have what Judge Gary is purported 
to have said at that luncheon, in the form of a press dispatch dated 
June 4; is that right? 

Mr. Gary. I presume that is right. 

Mr. Bartlett. I cut this from a paper published in Macon, Ga., 
and it purports to be, and is, a press dispatch. 
1 Thus in original. — Ed. 



400 Industrial Combinations and Trusts 

Mr. Gary. I think I can tell you, if you will read it. 
Mr. Bartlett. I will read this part of it: 

Referring to the bombshell which the Republic Co. threw into the steel 
market by reducing prices, Judge Gary said: "We are confronted with a very 
serious and disagreeable problem. It is not for me to criticize men nor to pass 
judgment on the motives of men. Whether people who have changed their 
minds suddenly are actuated by motives of cupidity or motives of necessity is 
not for me to say. One thing we know, that one of the leading iron and steel 
companies hitherto joining in our councils, learning from us our intentions, our 
business, our methods, our clients, our customers, everj^thing of benefit and 
interest for one to know concerning his neighbor, has suddenly, for reasons 
considered good by those in charge, given notice that for the present at least it 
is not desirable to cooperate with us." 

Mr. Gary. I have no doubt I said that, in substance. 
Mr. Bartlett. It is fair to quote from something else w^hich you 
are purported to have said. It refers to price cutting: 

I have urged you to remember, and I again call attention to the fact, that 
when you make substantial reductions in your prices, if you reduce to a price 
that is unfair and unreasonable and you make so small a profit that it does not 
yield you a fair return on your investment and your risk, you at least place for 
consideration before everyone the possible necessity of reducing the cost of 
production, including prominently, if not principally, the w^ages which you are 
paying, or may be allowed to pay, to the man or the men in your employ. Do 
not forget that the laboring men — the employees of the corporations — have 
more at risk, when these questions are considered of reducing prices below what 
is reasonable and fair, than the employer. You have no right to run the risk of 
being compelled to put their wages below what they ought to be unless you are 
driven to it, and I hope, under the present circumstances, gentlemen, that what- 
ever may be done, or whatever may happen as a result of present conditions, 
3^ou will not reduce the wages of your employees until you feel it is an absolute 
necessity to do so. 

Mr. Gary. I said that. I believe it. I think you will find at one 
of these dinners which has been referred to the principal topic for 
discussion — the substance of most of the speeches, at least — related 
to the welfare of employees. I am very sure it did. I do not think 
the question of prices was hardly referred to. 

Mr. Beall. In this statement, Judge, you said: 

It was the unanimous opinion that cooperation, as heretofore fully explained, 
should be continued. 

I quote that from the New York World. 

Mr. Gary. I think that is true. 

Mr. Beall. This article in the World says, further: 

Opinions were expressed that recent developments seem to require some 
change in prices. Subsidiary companies of the United States Steel Corporation 



Trust Methods 401 

have decided to make adjustments to become effective June i, and it is be- 
lieved these will be generally followed. 

Do you know whether the action of the United States Steel Corpo- 
ration has been generally followed or not by competing concerns? 

Mr. Gary. I think it has, and perhaps a little more than followed 
by some. I do not see how any of the others could keep their 
prices up after we reduced ours. As I said before, it is pretty easy 
to reduce prices. That is, if even a small manufacturer, if he is 
a substantial competitor, reduces his prices, of course the others 
reduce theirs. 

Mr. Beall. On page 24 there is a little statement from you. 

Mr. Gary. Of what meeting? 

Mr. Beall. This is all of the meeting of January 11, 191 1. I 
read as follows : 

I only want to call attention to the exact facts here so as to make it certain 
that none of us will unintentionally misrepresent the facts. In respect to some 
commodities, I am sure at the present time they are too low. One other thought. 
I agree with all that has been said by Mr. Topping and Mr. Felton and others 
concerning Mr. Farrell. You know about how proud I am of the fact that he 
is not only loyal, but that he is enthusiastic with reference to this policy of 
maintenance of higher prices, particularly such cooperation as advances the 
interests of all concerned. 

Mr. LiNDABURY. That is in the middle of the sentence, where 
you have stopped. 

Mr. Beall. I will read on: 

And yet we may unintentionally, by inference, some of us, in referring to him 
do an injustice to Mr. Corey, and as he is not present, I think I am justified in 
saying that none of you I am sure will say nor do you think that in a single 
instance did Mr. Corey ever give you his word concerning what he intended to 
do without keeping that word to the letter. 

Mr. Gary. I believe there is one word there that was not in the 
speech, but I do not know that it is at all important. 

Mr. Beall. What word is that? 

Mr. Gary. That is the word ''higher." It reads: "The mainte- 
nance of higher prices." 

Mr. Beall. It says: "With reference to this policy of mainte- 
nance of higher prices. " 

Mr. Gary. Yes. I do not know what that would mean or could 
mean, and I do not believe I ever said it. I believe it is either a 
typographical error or a stenographic error, because you will find 
the contrary of that expression in many of my statements. 



402 Industrial Combinations and Trusts 

Mr. Beall. Who is Mr. I. A. Kelly? 

Mr. Gary. He is the president of some company, I have for- 
gotten the name, the Ashland Steel Co., of Ashland, Ky. 
Mr. Beall. At the top of page 46 he says: 

I heartily cooperate in everything that has been said here to-night, and so far 
as our company is concerned we are ready and willing to still cooperate to do 
what we can to maintain prices. [Applause.] 

Do you not think that running through all these speeches that 
were made at the banquet the idea was to bring about such a condi- 
tion, without going into any iron-clad agreement, to bring about a 
condition where no man who attended would feel in honor that he 
could take any action tending to the lowering of prices in steel 
products? Do you not think that is just as effective as an agree- 
ment signed and sealed by all those who attended the dinner? 

Mr. Gary. It is not, or anything like that. It is not effective; 
it is influential. These meetings were calculated to influence people 
to maintain their prices. There is no doubt of that, but as I under- 
stand the vice of the law is in obligating people to maintain prices, 
in preventing absolute freedom on the part of each one to do as he 
pleases. I think the vice in conduct which is unlawful is found in 
the release of one's freedom to do exactly as he pleases. It was 
intended to influence people so far as we legitimately could to 
maintain fair prices, each one for himself using his best judgment, 
after full knowledge of the business of all. 

You will see where I have said at different times exactly what I 
had in mind what we would do and what we would not do. That 
was the cardinal doctrine. 

Mr. Littleton. Did I understand you to say that you considered 
that the Sherman antitrust law did not mean a contract or agree- 
ment unless it w^as one that was enforcible by either party? 

Mr. Gary. No; I would not say that. No; I think an agreement 
to maintain prices even though you could not enforce it would be 
contrary to the Sherman antitrust law; but I think that if two or 
three of us should come together and say: "We will tell you what 
we are doing all the time, we will not agree, but we will not change 
it, and if we change we will notify you. We will not put ourselves 
in a position where our freedom to do as we please is in any respect 
abridged, but we would like to have fair prices maintained. We 
think it is for the best interests of all concerned, ourselves and our 
employees and customers, to maintain fair prices and to prevent 



Trust Methods 403 

resort to tricks in the trade calculated to unfairly and indecently 
get business away, which always results in destructive competition." 
I think that is all perfectly legitimate in view of the Sherman anti- 
trust law. That has been my idea. I will be very glad to have the 
opinion of Mr. Littleton or Judge Bartlett or anyone else on that 
subject. Certainly, if I thought it was wrong or that we were 
doing anything wrong, I would not continue it for one moment. 

Mr. Littleton. Suppose, Judge Gary, that we agree that the 
Sherman antitrust law would forbid an agreement to maintain 
prices, if you had entered into one at one of these dinners. I think 
that could not be disputed? 

Mr. Gary. No, sir. 

Mr. Littleton. Now, suppose, Judge Gary, you came together 
and by foreclosure of the situation each to the other by this mutual 
and well-intentioned cooperation of which you speak the same 
result is accomplished, to wit, the maintenance of prices, the 
object which the Sherman antitrust law sought to prohibit has been 
accomplished, has it not? 

Mr. Gary. No, sir; I do not think it has. 

Mr. Littleton. You think that the Sherman antitrust law was 
directed at the agreement rather than the result of the agreement? 

Mr. Gary. I think so; I do, really. 

Take the case of two blacksmiths, for instance, and they come 
down the sidewalk together in a village town every day; one lives on 
one side of the street and the other on the other side, and one says 
to the other: "What are you charging for shoeing horses? I am 
charging a certain price." The other says: "Well, I am charging 
that same price,*' and that is all that takes place, and the result 
it 1 that they maintain those prices. I do not believe that that would 
be a violation of the Sherman antitrust law. It does not seem to 
me that it is intended to prevent that. The result is just the same 
as though they had agreed. 

Mr. Littleton. But would not that be because there was no 
agreement either express or implied between them? 

Mr. Gary. Perhaps it would. 

Mr. Littleton. If, by foreclosure of the situation of each to the 
other, and if by this mutual and, I will say, well-intentioned cooper- 
ation and meeting together, and if, by the experience of conference, 
each understanding the other, it might not come to a common point 
with a common purpose, each — obliged by his natural sense of 
1 Thus in original. — Ed. 



404 INDUSTRLA.L COMBINATIONS AND TRUSTS 

honor — should feel obliged to maintain prices, does not that bring 
about the same result as if there were an agreement? 

Mr. Gary. No; it does not bring about the same result. 

Mr. Littleton. So far as the effect on the trade is concerned? 

Mr. Gary. No; it does not by a good deal. 

Mr. Littleton. Perhaps I did not add one condition; suppose 
they did, then it does accomphsh the same purpose? 

Mr. Gary. Of course if you and I, knowing exactly what the 
other is doing from time to time, continue to do that same thing, 
then the result is the same as if you and I agree to do that. 

Mr. Littleton. You will recall — I do not recall it exactly — one 
of Mr. Lincoln's favorite illustrations that if four men in four 
counties each whittled on a piece of w^ood for four or five days and 
met at the county seat and put their pieces of w^ood on a table and 
they all fitted with each other that he would ask nobody to furnish 
him with any evidence of the fact that they had had an agreement 
in advance that they would all whittle in a certain direction and 
that they would meet there, and he thought that was the highest 
authority. 

Mr. Gary. I am not familiar with that. I am certain in our case 
the sticks do not fit. They never have fitted; they have never 
been like anything else. 

The Chairman. I will call your attention to a statement pur- 
porting to come 

Mr. Gary (interposing). The intention has been and the effect 
has been to maintain reasonable pricse ^ more or less all the time on 
the part of those connected mth it. I have hoped that it would 
be very extensive and at some times I have thought it was, but the 
results have not been like they would have been if there had been 
an agreement with a penalty such as used to be made before I 
came into the business at all. 

Exhibit 6 

or AMERICA 2 

The Government alleges that: 
. . Among other methods of harassing such independents defend- 
ant used the f oUomng : It Vs^ould delay forwarding bills of lading, and 

1 Thus in original. — Ed. 

2 United States of America v. of America. Petition in Equity, In 

the Court of the United States for the District of , pp. 23-26. 



Trust Methods 405 

would refuse to supply independents further with metal, sometimes 
abruptly ceasing entirely to ship metal without warning or state- 
ment of excuse of any kind, or causing its controlled companies to 
do so, so that the concern affected was unable to fill its orders. 

It discriminated against independents as to price for the crude 

needed, so that they were unable successfully to bid against 

or compete with the favored industries and obtain a living margin 
of profit. 

It frequently refused to sell metal to those desiring to enter 

the business of manufacturing goods, thereby preventing 

an expansion of the industry and restraining trade therein. 

It refused to sell to others desiring to enter said field any 

metal unless they would agree not to engage in any line in any 
manner competing with the lines of the defendant and its allied 
companies. 

It refused to guarantee quahty, and at times delivered to com- 
peting plants metal which was known to be worthless and which 
had been rejected by plants alhed to defendant. 

It demanded to know the prices at which independent compet- 
itors had bid on or taken contracts for work to be done before it 
would furnish them the metal required to fill the contract or even 
quote prices of same, and it would impart the knowledge thus 
obtained to an allied company competing with such purchaser. 

It represented and intimated to independent concerns and cus- 
tomers that, unless they dealt with defendant or its allied companies 

as to crude , their supply thereof would be cut off, or they 

would be unable to get their entire supply at reasonable prices. 

It represented and intimated to dealers in and consumers of 

wares that, unless they dealt with defendant or its aUied 

companies, their supply of the manufactured product would be 
cut off. 

It represented and intimated to consumers that, if they did not 
buy of the defendant or of its allied companies, they would be 
buying of manufacturers who would be without the metal to com- 
plete their contracts, and intimated to consumers that a new 

agreement, such as had been in effect, would be put into effect 
again, thereby leaving defendant the only source of supply within 
the United States at any price; and it was especially by this con- 
duct that big consumers were driven away from competing manu- 
facturers. 

One competitor who was preparing to enlarge his plant was 



4o6 Industrial Combinations and Trusts 

threatened by defendant that if he did so he would be put out of 
business (the defendant being at said time the sole available source 
of supply for the raw material needed). 

It, either directly or through its controlled companies, bid on 
supplies for the best customers of the independent competing com- 
panies at such prices that it was impossible for such companies, 
who were compelled to purchase their raw material from defendant, 
to successfully compete therewith. 

Defendant claimed to have gone into the utensils business 

for the purpose of increasing the market for its sheets faster 

than it was being developed. Yet, when it entered upon this 
branch of the industry it purposely was subjecting the then makers 
of such utensils to delays on shipments; and petitioner alleges that 
having seen that such manufacture was growing into a profitable 
business, it entered therein for the purpose of monopolizing it, 
along with the other branches of the industry. 

Certain large customers of defendant for a time made only novel- 
ties of , in which business neither defendant nor an allied 

company was engaged. During said period they had no trouble 

about getting from defendant a sufficient supply of of any 

desired kind and specifications. Later some of these firms en- 
tered into the business of making utensils of . There- 
upon delays and harassments in obtaining metal from defendants 
were begun and continued. At or about the time some of such 
manufacturers entered into said competitive business, defendant 
threatened that if they engaged therein they might expect loss. 
Such threats were consummated by the refusal to furnish metal 
in such a manner and in such quantities and of such quality as 
to enable such firms to take or properly complete orders, and thus 
some were compelled to abandon said business. 

It required some customers to make contracts not to engage in 
competitive fines of manufacture, and also at times required an 
agreement to maintain certain fixed prices, or prices above a desig- 
nated minimum, on manufactured articles in sale and resale, as a 
condition precedent to receiving metal. 



CHAPTER XIII 

RECENT TRUST DECISIONS 

NOTE 

The prominence given to the Standard Oil and Tobacco decisions 
tended to render insignificant some of the decisions handed down 
against other combinations, and to obscure the fact that many of 
these decisions are really of considerable importance. It is even 
possible, that, whatever may be the effect of the two former notable 
decisions, the decrees in some of the minor cases may have the 
effect of restoring in the case of such combinations, conditions 
substantially the same as the status quo before their formation. 
Therefore, in the scope of this chapter there have been included 
excerpts from other decrees besides those against the Standard Oil 
and the American Tobacco Companies. — Ed. 

Exhibit i 
decree against the standard oil company * 
Mr. Chief Justice White delivered the opinion of the Court. 



The debates show that doubt as to whether there was a common 
law of the United States which governed the subject in the absence 
of legislation was among the influences leading to the passage of the 
act. They conclusively show, however, that the main cause which 
led to the legislation was the thought that it was required by the 
economic condition of the times, that is, the vast accumulation of 
wealth in the hands of corporations and individuals, the enormous 
development of corporate organization, the facility for combina- 
tion which such organizations afforded, the fact that the facility 
was being used, and that combinations known as trusts were being 
multiplied, and the wide-spread impression that their power had 
been and would be exerted to oppress individuals and injure the 
public generally. Although debates may not be used as a means 
for interpreting a statute {United States v. Trans-Missouri Freight 

I221U. S. I. 
407 



4o8 Industrial Combinations and Trusts 

Association, i66 U. S. 318, and cases cited) that rule in the nature 
of things is not violated by resorting to debates as a means of as- 
certaining the environment at the time of the enactment of a par- 
ticular law, that is, the history of the period when it was adopted. 



In view of the common law and the law in this country as to 
restraint of trade, which we have reviewed, and the illuminating 
effect which that history must have under the rule to which we have 
referred, we think it results: 

a. That the context manifests that the statute was drawn in the 
light of the existing practical conception of the law of restraint of 
trade, because it groups as within that class, not only contracts 
which were in restraint of trade in the subjective sense, but all con- 
tracts or acts which theoretically were attempts to monopolize, yet 
which in practise had come to be considered as in restraint of trade 
in a broad sense. 

b. That in view of the many new forms of contracts and combina- 
tions which were being evolved from existing enocomic conditions, 
it was deemed essential by an all-embracing enumeration to make 
sure that no form of contract or combination by which an undue 
restraint of interstate or foreign commerce was brought about could 
save such restraint from condemnation. The statute under this view 
evidenced the intent not to restrain the right to make and enforce 
contracts, whether resulting from combination or otherwise, which 
did not unduly restrain interstate or foreign commerce, but to pro- 
tect that commerce from being restrained by methods, whether 
old or new, which would constitute an interference that is an undue 
restraint. 

c. And as the contracts or acts embraced in the provision were 
not expressly defined, since the enumeration addressed itself simply 
to classes of acts, those classes being broad enough to embrace 
every conceivable contract or combination which could be made 
concerning trade or commerce or the subjects of such commerce, 
and thus caused any act done by any of the enumerated methods 
anywhere in the whole field of human activity to be illegal if in 
restraint of trade, it inevitably follows that the provision necessarily 
called for the exercise of judgment which required that some stand- 
ard should be resorted to for the purpose of determining whether 
the prohibitions contained in the statute had or had not in any given 
case been violated. Thus not specifying but indubitably contem- 



Recent Trust Decisions 409 

plating and requiring a standard, it follovvrs that it was intended 
that the standard of reason which had been appUed at the common 
law and in this country in dealing with subjects of the character 
embraced by the statute, was intended to be the measure used for 
the purpose of determining whether in a given case a particular 
act had or had not brought about the wrong against which the 
statute provided. 



Second. The contentions of the parties as to the meaning of the stat- 
ute and the decisions of this court relied upon concerning those con- 
tentions. 

In substance, the propositions urged by the Government are 
reducible to this: That the language of the statute embraces every 
contract, combination, etc., in restraint of trade, and hence its 
text leaves no room for the exercise of judgment, but simply im- 
poses the plain duty of applying its prohibitions to every case 
within its Hteral language. The error involved lies in assuming the 
matter to be decided. This is true because as the acts which may 
come under the classes stated in the first section and the restraint 
of trade to which that section applies are not specifically enumer- 
ated or defined, it is obvious that judgment must in every case be 
called into play in order to determine whether a particular act is 
embraced within the statutory classes, and whether if the act is 
within such classes its nature or effect causes it to be a restraint of 
trade within the intendment of the act. To hold to the contrary 
would require the conclusion either that every contract, act or com- 
bination of any kind or nature, whether it operated a restraint on 
trade or not, was within the statute, and thus the statute would be 
destructive of all right to contract or agree or combine in any respect 
whatever as to subjects embraced in interstate trade or commerce, 
or if this conclusion were not reached, then the contention would 
require it to be held that as the statute did not define the things to 
which it related and excluded resort to the only means by which the 
acts to which it relates could be ascertained — the light of reason — 
the enforcement of the statute was impossible because of its uncer- 
tainty. The merely generic enumeration which the statute makes 
of the acts to which it refers and the absence of any definition of 
restraint of trade as used in the statute leaves room for but one con- 
clusion, which is, that it was expressly designed not to unduly 
limit the apphcation of the act by precise definition, but while 



4IO Industrial Combinations and Trusts 

clearly fixing a standard, that is, by defining the ulterior bound- 
aries which could not be transgressed with impunity, to leave it to 
be determined by the light of reason, guided by the principles of 
law and the duty to apply and enforce the pubHc policy embodied 
in the statute, in every given case whether any particular act or 
contract was within the contemplation of the statute. 

But, it is said, persuasive as these views may be, they may not be 
here applied, because the previous decisions of this court have given 
to the statute a meaning which expressly excludes the construction 
which must result from the reasoning stated. The cases are United 
States V. Freight Association, i66 U. S. 290, and United States v. 
Joint Traffic Association, 171 U. S. 505. Both the cases involved the 
legaHty of combinations or associations of railroads engaged in 
interstate commerce for the purpose of controlling the conduct of 
the parties to the association or combination in many particulars. 
The association or combination was assailed in each case as being 
in violation of the statute. It was held that they were. It is un- 
doubted that in the opinion in each case general language was 
made use of, which, when separated from its context, would justify 
the conclusion that it was decided that reason could not be resorted 
to for the purpose of determining whether the acts complained of 
were within the statute. It is, however, also true that the nature 
and character of the contract or agreement in each case was fully 
referred to and suggestions as to their unreasonableness pointed 
out in order to indicate that they were within the prohibitions of 
the statute. As the cases cannot by any possible conception be 
treated as authoritative without the certitude that reason was 
resorted to for the purpose of deciding them, it follows as a matter 
of course that it must have been held by the light of reason, since 
the conclusion could not have been otherwise reached, that the 
assailed contracts or agreements were within the general enumera- 
tion of the statute, and that their operation and effect brought about 
the restraint of trade wliich the statute prohibited. This being 
inevitable, the deduction can in reason only be this: That in the 
cases relied upon it having been found that the acts complained 
of were within the statute and operated to produce the injuries 
which the statute forbade, that resort to reason was not permissible 
in order to allow that to be done w^hich the statute prohibited. This 
being true, the ruhngs in the cases rehed upon when rightly ap- 
preciated were therefore this and nothing more: That as consider- 
ing the contracts or agreements, their necessary effect and the char- 



Recent Trust Decisions 411 

acter of the parties by whom they were made, they were clearly 
restraints of trade within the purview of the statute, they could 
not be taken out of that category by indulging in general reasoning 
as to the expediency or non-expediency of having made the con- 
tracts or the wisdom or want of wisdom of the statute which pro- 
hibited their being made. That is to say, the cases but decided 
that the nature and character of the contracts, creating as they did 
a conclusive presumption which brought them within the statute, 
such result was not to be disregarded by the substitution of a 
judicial appreciation of what the law ought to be for the plain ju- 
dicial duty of enforcing the law as it was made. 

But aside from reasoning it is true to say that the cases relied 
upon do not when rightly construed sustain the doctrine contended 
for is established by all of the numerous decisions of this court which 
have appHed and enforced the Anti-trust Act, since they all in the 
very nature of things rest upon the premise that reason was the 
guide by which the provisions of the act were in every case inter- 
preted. Indeed intermediate the decision of the two cases, that is, • 
after the decision in the Freight Association Case and before the 
decision in the Joint Traffic Case^ the case of Hopkins v. United 
States y 171 U. S. 578, was decided, the opinion being delivered by 
Mr. Justice Peckham, who wrote both the opinions in the Freight 
Association and the Joint Traffic cases. And, referring in the 
Hopkins Case to the broad claim made as to the rule of interpreta- 
tion announced in the Freight Association Case, it was said (p. 592) : 
"To treat as condemned by the act all agreements under which, as 
a result, the cost of conducting an interstate commercial business 
may be increased would enlarge the application of the act far be- 
yond the fair meaning of the language used. There must be some 
direct and immediate effect upon interstate commerce in order to 
come within the act." And in the Joint Traffic Case this statement 
was expressly reiterated and approved and illustrated by example ; 
like limitation on the general language used in Freight Association 
and Joint Traffic Cases is also the clear result of Bement v. National 
Harrow Co., 186 U. S. 70, 92, and especially of Cincinnati Packet 
Co, v. Bay, 200 U. S. 179. 

If the criterion by which it is to be determined in all cases whether 
every contract, combination, etc., is a restraint of trade within the 
intendment of the law, is the direct or indirect effect of the acts 
involved, then of course the rule of reason becomes the guide, and 
the construction which we have given the statute, instead of being 



412 Industrial Combinations and Trusts 

refuted by the cases relied upon, is by those cases demonstrated to 
be correct. This is true, because as the construction which we have 
deduced from the history of the act and the analysis of its text is 
simply that in every case where it is claimed that an act or acts are 
in violation of the statute the rule of reason, in the light of the prin- 
ciples of law and the public poHcy which the act embodies, must be 
applied. From this it follows, since that rule and the result of the 
test as to direct or indirect, in their ultimate aspect, come to one 
and the same thing, that the difference between the two is therefore 
only that which obtains between things which do not differ at all. 

If it be true that there is this identity of result between the rule 
intended to be applied in the Freight Association Case, that is, the 
rule of direct and indirect, and the rule of reason which under the 
statute as we construe it should be here applied, it may be asked 
how was it that in the opinion in the Freight Association Case much 
consideration was given to the subject of whether the agreement or 
combination which was involved in that case could be taken out of 
the prohibitions of the statute upon the theory of its reasonableness. 
The question is pertinent and must be fully and frankly met, for 
if it be now deemed that the Freight Association Case w^as mistak- 
enly decided or too broadly stated, the doctrine which it announced 
should be either expressly overruled or limited. 

The confusion which gives rise to the question results from failing 
to distinguish between the want of power to take a case which by 
its terms or the circumstances which surrounded it, considering 
among such circumstances the character of the parties, is plainly 
within the statute, out of the operation of the statute by resort to 
reason in effect to establish that the contract ought not to be treated 
as within the statute, and the duty in every case where it becomes 
necessary from the nature and character of the parties to decide 
whether it was within the statute to pass upon that question by the 
light of reason. This distinction, we think, serves to point out 
what in its ultimate conception was the thought underlying the 
reference to the rule of reason made in the Freight Association Case, 
especially when such reference is interpreted by the context of the 
opinion and in the light of the subsequent opinion in the Hopkins 
Case and in Cincinnati Packet Company v. Bay, 200 U. S. 179. 

And in order, not in the slightest degree to be wanting in frank- 
ness, we say that in so far, however, as by separating the general 
language used in the opinions in the Freight Association and Joint 
Traffic cases from the context and the subject and parties with 



Recent Trust Decisions 413 

which the cases were concerned, it may be conceived that the lan- 
guage referred to conflicts with the construction which we give the 
statute, they are necessarily now limited and qualified. We see no 
possible escape from this conclusion if we are to adhere to the many 
cases decided in this court in which the Anti-trust Law has been 
applied and enforced and if the duty to apply and enforce that law 
in the future is to continue to exist. The first is true, because the 
construction which we now give the statute does not in the slightest 
degree conflict with a single previous case decided concerning the 
Anti-trust Law aside from the contention as to the Freight Associa- 
tion and Joint Traffic cases, and because every one of those cases 
applied the rule of reason for the purpose of determining whether 
the subject before the court was within the statute. The second is 
also true, since, as we have already pointed out, unaided by the 
light of reason it is impossible to understand how the statute may 
in the future be enforced and the public policy which it establishes 
be made efficacious. 



Giving to the facts just stated, the weight which it was deemed 
they were entitled to, in the light afforded by the proof of other 
cognate facts and circumstances, the court below held that the 
acts and dealings established by the proof operated to destroy the 
"potentiality of competition" which otherwise would have ex- 
isted to such an extent as to cause the transfers of stock which were 
made to the New Jersey corporation and the control which resulted 
over the many and various subsidiary corporations to be a com- 
bination or conspiracy in restraint of trade in violation of the 
first section of the act, but also to be an attempt to monopolize and 
a monopolization bringing about a perennial violation of the second 
section. 

We see no cause to doubt the correctness of these conclusions, 
considering the subject from every aspect, that is, both in view 
of the facts established by the record and the necessary operation 
and effect of the law as we have construed it upon the inferences 
deducible from the facts, for the following reasons: 

a. Because the unification of power and control over petroleum 
and its products which was the inevitable result of the combining 
in the New Jersey corporation by the increase of its stock and the 
transfer to it of the stocks of so many other corporations, aggregat- 
ing so vast a capital, gives rise, in and of itself, in the absence of 



414 Industrial Combinations and Trusts 

countervailing circumstances, to say the least, to the prima facie 
presumption of intent and purpose to maintain the dominancy over 
the oil industry, not as a result of normal methods of industrial 
development, but by new means of combination which were re- 
sorted to in order that greater power might be added than would 
otherwise have arisen had normal methods been followed, the 
whole with the purpose of excluding others from the trade and thus 
centralizing in the combination a perpetual control of the move- 
ments of petroleum and its products in the channels of interstate 
commerce. 

h. Because the prima facie presumption of intent to restrain 
trade, to monopolize and to bring about monopolization resulting 
from the act of expanding the stock of the New Jersey corporation 
and vesting it with such vast control of the oil industry, is made 
conclusive by considering, i, the conduct of the persons or corpora- 
tions who were mainly instrumental in bringing about the extension 
of power in the New Jersey corporation before the consummation 
of that result and prior to the formation of the trust agreements of 
1879 and 1882 ; 2, by considering the proof as to what was done under 
those agreements and the acts which immediately preceded the 
vesting of power in the New Jersey corporation as well as by weigh- 
ing the modes in which the power vested in that corporation has 
been exerted and the results which have arisen from it. 

Recurring to the acts done by the individuals or corporations who 
were mainly instrumental in bringing about the expansion of the 
New Jersey corporation during the period prior to the formation 
of the trust agreements of 1879 and 1882, including those agree- 
ments, not for the purpose of weighing the substantial merit of 
the numerous charges of wrongdoing made during such period, 
but solely as an aid for discovering intent and purpose, we think 
no disinterested mind can survey the period in question without 
being irresistibly driven to the conclusion that the very genius 
for commercial development and organization which it would seem 
was manifested from the beginning soon begot an intent and pur- 
pose to exclude others which was frequently manifested by acts 
and dealings wholly inconsistent with the theory that they were 
made with the single conception of advancing the development of 
business power by usual methods, but which on the contrary neces- 
sarily involved the intent to drive others from the field and to ex- 
clude them from their right to trade and thus accomplish the 
mastery which was the end in view. And, considering the period 



Recent Trust Decisions 415 

from the date of the trust agreements of 1879 and 1882, up to the 
time of the expansion of the New Jersey corporation, the gradual 
extension of the power over the commerce in oil which ensued, 
the decision of the Supreme Court of Ohio, the tardiness or reluc- 
tance in conforming to the commands of that decision, the method 
first adopted and that which finally culminated in the plan of the 
New Jersey corporation, all additionally serve to make manifest the 
continued existence of the intent which we have previously indi- 
cated and which among other things impelled the expansion of 
the New Jersey corporation. The exercise of the power which 
resulted from that organization fortifies the foregoing conclusions, 
since the development which came, the acquisition here and there 
which ensued of every efficient means by which competition could 
have been asserted, the slow but resistless methods which followed 
by which means of transportation were absorbed and brought 
under control, the system of marketing which was adopted by 
which the country was divided into districts and the trade in each 
district in oil was turned over to a designated corporation within 
the combination and all others were excluded, all lead the mind up 
to a conviction of a purpose and intent which we think is so certain 
as practically to cause the subject not to be within the domain of 
reasonable contention. 

The inference that no attempt to monopolize could have been 
intended, and that no monopolization resulted from the acts com- 
plained of, since it is established that a very small percentage of 
the crude oil produced was controlled by the combination, is 
unwarranted. As substantial power over the crude product was 
the inevitable result of the absolute control which existed over the 
refined product, the monopolization of the one carried with it the 
power to control the other, and if the inferences which this situation 
suggests were developed, which we deem it unnecessary to do, they 
might well serve to add additional cogency to the presumption 
of intent to monopolize which we have found arises from the un- 
questioned proof on other subjects. 

We are thus brought to the last subject which we are called upon 
to consider, viz: 

Fourth. The remedy to he administered. 

It may be conceded that ordinarily where it was found that 
acts had been done in violation of the statute, adequate measure 
of relief would result from restraining the doing of such acts in 
the future. Swift v. United States, 196 U. S. 375. But in a case 



41 6 Industrial Combinations and Trusts 

like this, where the condition which has been brought about in 
violation of the statute, in and of itself, is not only a continued 
attempt to monopolize, but also a monopolization, the duty to 
enforce the statute requires the application of broader and more 
controlling remedies. As penalties v/hich are not authorized by 
law may not be infhcted by judicial authority, it follows that to 
meet the situation with which we are confronted the application of 
remedies two-fold in character becomes essential: ist. To forbid the 
doing in the future of acts like those which we have found to have 
been done in the past which would be violative of the statute. 2d. 
The exertion of such measure of relief as will effectually dissolve 
the combination found to exist in violation of the statute, and thus 
neutralize the extension and continually operating force w^hich the 
possession of the power unlawfully obtained has brought and will 
continue to bring about. 

In applying remedies for this purpose, however, the fact must 
not be overlooked that injury to the public by the prevention of an 
undue restraint on, or the monopolization of trade or commerce 
is the foundation upon which the prohibitions of the statute rest, 
and moreover that one of the fundamental purposes of the statute 
is to protect, not to destroy, rights of property. 

Exhibit 2. 



Mr. Chief Justice White delivered the opinion of the Court. 



. . While it is argued on the one hand that the forms by which 
various properties were acquired in view of the letter of the act 
exclude many of the assailed transactions from condemnation, 
it is yet urged that giving to the act the broad construction which 
it should rightfully receive, whatever may be the form, no condem- 
nation should follow, because looking at the case as a whole, every 
act assailed is shown to have been but a legitimate and lav/ful result 
of the exertion of honest business methods brought into play for the 
purpose of advancing trade instead of with the object of obstructing 
and restraining the same. But the difficulties which arise, from 
the complexity of the particular dealings which are here involved 
and the situation which they produce, we think grows out of a 

1 221 U. S. 106. 



Recent Trust Decisions 417 

plain misconception of both the letter and spirit of the Anti-trust 
Act. We say of the letter, because while seeking by a narrow rule 
of the letter to include things which it is deemed would otherwise 
be excluded, the contention really destroys the great purpose of 
the act, since it renders it impossible to apply the law to a multitude 
of wrongful acts, which would come within the scope of its remedial 
purposes by resort to a reasonable construction, although they 
would not be within its reach by a too narrow and unreasonable 
adherence to the strict letter. This must be the case unless it be 
possible in reason to say that for the purpose of including one class 
of acts which would not otherwise be embraced a literal construction 
although in conflict with reason must be applied and for the pur- 
pose of including other acts which would not otherwise be embraced 
a reasonable construction must be resorted to. That is to say 
two confhcting rules of construction must at one and the same time 
be applied and adhered to. 

The obscurity and resulting uncertainty however, is now but 
an abstraction because it has been removed by the consideration 
which we have given quite recently to the construction of the 
Anti-trust Act in the Standard Oil Case. In that case it was held, 
without departing from any previous decision of the court that as 
the statute had not defined the words restraint of trade, it became 
necessary to construe those words, a duty which could only be 
discharged by a resort to reason. We say the doctrine thus stated 
was in accord with all the previous decisions of this court, despite 
the fact that the contrary view was sometimes erroneously attrib- 
uted to some of the expressions used in two prior decisions (the 
Trans-Missouri Freight Association and Joint Traffic cases, 166 U. S. 
290 and 171 U. S. 505.) That such view was a mistaken one was 
fully pointed out in the Standard Oil Case and is additionally shown 
by a passage in the opinion in the Joint Traffic Case as follows (171 
U. S. 568): "The act of Congress must have a reasonable construc- 
tion, or else there would scarcely be an agreement or contract 
among business men thafc could not be said to have, indirectly or 
remotely, some bearing on interstate commerce, and possibly to 
restrain it.'' Applying the rule of reason to the construction of the 
statute, it was held in the Standard Oil Case that as the words 
" restraint of trade " at common law and in the law of this country 
at the time of the adoption of the Anti-trust Act only embraced 
acts or contracts or agreements or combinations which operated 
to the prejudice of the public interests by unduly restricting compe- 



41 8 Industrial Combinations and Trusts 

tition or unduly obstructing the due course of trade or which, 
either because of their inherent nature or effect or because of the 
evident purpose of the acts, etc., injuriously restrained trade, that 
the words as used in the statute were designed to have and did have 
but a like significance. It was therefore pointed out that the 
statute did not forbid or restrain the power to make normal and 
usual contracts to further trade by resorting to all normal methods, 
whether by agreement or otherwise, to accomplish such purpose. 
In other words, it was held, not that acts which the statute pro- 
hibited could be removed from the control of its prohibitions by a 
finding that they were reasonable, but that the duty to interpret 
which inevitably arose from the general character of the term 
restraint of trade required that the words restraint of trade should 
be given a meaning which would not destroy the individual right 
to contract and render difiicult if not impossible any movement 
of trade in the channels of interstate commerce — the free move- 
ment of which it was the purpose of the statute to protect. The 
soundness of the rule that the statute should receive a reasonable 
construction, after further mature deliberation, we see no reason 
to doubt. Indeed, the necessity for not departing in this case 
from the standard of the rule of reason which is universal in its 
application is so plainly required in order to give effect to the 
remedial purposes which the act under consideration contemplates, 
and to prevent that act from destroying all liberty of contract 
and all substantial right to trade, and thus causing the act to be 
at war with itself by annihilating the fundamental right of freedom 
to trade which, on the very face of the act, it was enacted to preserve, 
is illustrated by the record before us. In truth, the plain demon- 
stration which this record gives of the injury which would arise 
from and the promotion of the wrongs which the statute was in- 
tended to guard against which would result from giving to the 
statute a narrow, unreasoning and unheard of construction, as 
illustrated by the record before us, if possible serves to strengthen 
our conviction as to the correctness of the rule of construction, the 
rule of reason, which was applied in the Standard Oil Case, the 
application of which rule to the statute we now, in the most un- 
equivocal terms, reexpress and re-affirm. 

Coming then to apply to the case before us the act as interpreted 
in the Standard Oil and previous cases, all the difficulties suggested 
by the mere form in which the assailed transactions are clothed 
become of no moment. This follows because although it was held 



Recent Trust Decisions 419 

in the Standard Oil Case that, giving to the statute a reasonable 
construction, the words " restraint of trade " did not embrace all 
those normal and usual contracts essential to individual freedom 
and the right to make which were necessary in order that the 
course of trade might be free, yet, as a result of the reasonable con- 
struction which was affixed to the statute, it was pointed out that 
the generic designation of the first and second sections of the law, 
when taken together, embraced every conceivable act which could 
possibly come within the spirit or purpose of the prohibitions of 
the law, without regard to the garb in which such acts were clothed. 
That is to say, it was held that in view of the general language 
of the statute and the pubhc policy which it manifested, there was 
no possibihty of frustrating that policy by resorting to any disguise 
or subterfuge of form, since resort to reason rendered it impossible 
to escape by any indirection the prohibitions of the statute. 

Considering then the undisputed facts which we have previously 
stated, il remains only to determine whether they establish that 
the acts, contracts, agreements, combinations, etc., which were 
assailed were of such an unusual and wrongful character as to 
bring them within the prohibitions of the law. That they were, in 
our opinion, so overwhelmingly results from the undisputed facts 
that it seems only necessary to refer to the facts as we have stated 
them to demonstrate the correctness of this conclusion. Indeed, the 
history of the combination is so replete with the doing of acts 
which it was the obvious purpose of the statute to forbid, so demon- 
strative of the existence from the beginning of a purpose to acquire 
dominion and control of the tobacco trade, not by the mere exertion 
of the ordinary right to contract and to trade, but by methods 
devised in order to monopoHze the trade by driving competitors 
out of business, which were ruthlessly carried out upon the assump- 
tion that to work upon the fears or play upon the cupidity of 
competitors would make success possible. We say these conclu- 
sions are inevitable, not because of the vast amount of property 
aggregated by the combination, not because alone of the many cor- 
porations which the proof shows were united by resort to one 
device or another. Again, not alone because of the dominion and 
control over the tobacco trade which actually exists, but because 
we think the conclusion of wrongful purpose and illegal combina- 
tion is overwhelmingly established by the following considerations: 
a. By the fact that the very first organization or combination was 
impelled by a previously existing fierce trade war, evidently in- 



420 Industrial Combinations and Trusts 

spired by one or more of the minds which brought about and 
became parties to that combination, h. Because, immediately 
after that combination and the increase of capital which followed, 
the acts which ensued justify the inference that the intention 
existed to use the power of the combination as a vantage ground 
to further monopoHze the trade in tobacco by means of trade 
conflicts designed to injure others, either by driving competitors 
out of the business or compelling them to become parties to a 
combination — a purpose whose execution was illustrated by the plug 
war which ensued and its results, by the snuff war which followed 
and its results, and by the conflict which immediately followed the 
entry of the combination in England and the division of the world's 
business by the two foreign contracts which ensued, c. By the 
ever-present manifestation which is exhibited of a conscious wrong- 
doing by the form in v/hich the various transactions were em- 
bodied from the beginning, ever changing but ever in substance 
the same. Now the organization of a new company, now the control 
exerted by the taking of stock in one or another or in several, so 
as to obscure the result actually attained, nevertheless uniform, 
in their manifestations of the purpose to restrain others and to 
monopolize and retain power in the hands of the few who, it would 
seem, from the beginning contemplated the mastery of the trade 
which practically followed, d. By the gradual absorption of control 
over all the elements essential to the successful manufacture of 
tobacco products, and placing such control in the hands of seem- 
ingly independent corporations serving as perpetual barriers to 
the entry of others into the tobacco trade, e. By persistent ex- 
penditure of millions upon millions of dollars in buying out plants, 
not for the purpose of utilizing them, but in order to close them up 
and render them useless for the purposes of trade. /. By the 
constantly recurring stipulations, whose legality, isolatedly viewed, 
we are not considering, by which numbers of persons, whether 
manufacturers, stockholders or employees, were required to bind 
themselves, generally for long periods, not to compete in the 
future. Indeed, when the results of the undisputed proof which we 
have stated are fully apprehended, and the wrongful acts which 
they exhibit are considered, there comes inevitably to the mind 
the conviction that it was the danger which it Y\^as deemed would 
arise to individual liberty and the public well-being from acts Hke 
those which this record exhibits, which led the legislative mind to 
conceive and to enact the Anti-trust Act, considerations which also 



Recent Trust Decisions 421 

serve to clearly demonstrate that the combination here assailed 
is within the law as to leave no doubt that it is our plain duty to 
apply its prohibitions. 

In stating summarily, as we have done, the conclusions which, in 
our opinion, are plainly deducible from the undisputed facts, we 
have not paused to give the reasons why we consider, after great 
consideration, that the elaborate arguments advanced to give a 
different complexion to the case are wholly devoid of merit. We 
do not, for the sake of brevity, moreover, stop to examine and 
discuss the various propositions urged in the argument at bar 
for the purpose of demonstrating that the subject-matter of the 
combination which we find to exist and the combination itself are 
not within the scope of the Anti-trust Act because when rightly 
considered they are merely matters of intrastate commerce and 
therefore subject alone to state control. We have done this because 
the want of merit in all the arguments advanced on such subjects 
is so completely established by the prior decisions of this court, as 
pointed out in the Standard Oil Case, as not to require restatement. 

Leading as this does to the conclusion that the assailed combina- 
tion in all its aspects — that is to say, whether it be looked at from 
the point of view of stock ownership or from the standpoint of the 
principal corporation and the accessory or subsidiary corporations 
viewed independently, including the foreign corporations in so far 
as by the contracts made by them they became cooperators in 
the combination — comes within the prohibitions of the first and 
second sections of the An ti- trust Act, it remains only finally to 
consider the remedy which it is our duty to apply to the situation 
thus found to exist. 

The remedy. 

Our conclusion being that the combination as a whole, involving 
all its cooperating or associated parts, in whatever form clothed, 
constitutes a restraint of trade within the first section, and an at- 
tempt to monopolize or a monopolization within the second section 
of the An ti- trust Act, it follows that the relief which we are to afford 
must be wider than that awarded by the lower court, since that 
court merely decided that certain of the corporate defendants con- 
stituted combinations in violation of the first section of the act, 
because of the fact that they were formed by the union of previously 
competing concerns and that the other defendants not dismissed 
from the action were parties to such combinations or promoted 
their purposes. We hence, in determining the relief proper to be 



422 Industrial Combinations and Trusts 

given, may not model our action upon that granted by the court 
below, but in order to enable us to award relief coterminous with 
the ultimate redress of the wrongs which we find to exist, we must 
approach the subject of relief from an original point of view. Such 
subject necessarily takes a two-fold aspect — the character of the 
permanent rehef required and the nature of the temporary relief 
essential to be applied pending the working out of permanent 
rehef in the event that it be found that it is impossible under the 
situation as it now exists to at once rectify such existing wrongful 
condition. In considering the subject from both these aspects 
three dominant influences must guide our action: i. The duty of 
giving complete and efficacious effect to the prohibitions of the 
statute; 2, the accomplishing of this result with as little injury as 
possible to the interest of the general pubHc; and, 3, a proper regard 
for the vast interests of private property which may have become 
vested in many persons as a result of the acquisition either by way 
of stock ownership or othenA^se of interests in the stock or securities 
of the combination without any guilty knowledge or intent in any 
way to become actors or participants in the wrongs which we find to 
have inspired and dominated the combination from the beginning. 
Mindful of these considerations and to clear the way for their 
appHcation we say at the outset without stopping to amphfy the 
reasons which lead us to that conclusion, we think that the court 
below clearly erred in dismissing the individual defendants, the 
United Cigar Stores Company, and the foreign corporations and 
their subsidiary corporations. 

Looking at the situation as w^e have hitherto pointed it out, it 
involves difficulties in the appHcation of remedies greater than have 
been presented by any case involving the Anti-trust Act which has 
been hitherto considered by this court: First. Because in this 
case it is obvious that a mere decree forbidding stock ownership by 
one part of the combination in another part or entity thereof, 
would afford no adequate measure of rehef, since different ingre- 
dients of the combination would remain unaffected, and by the very 
nature and character of their organization would be able to continue 
the wrongful situation which it is our duty to destroy. Second. 
Because the methods of apparent ownership by which the wrongful 
intent was, in part, carried out and the subtle devices which, as 
we have seen, were resorted to for the purpose of accomphshing 
the wrong contemplated, by v/ay of ownership or otherwise, are 
of such a character that it is difficult if not impossible to formulate 



Recent Trust Decisions 423 

a remedy which could restore in their entirety the prior lawful 
conditions. Third. Because the methods devised by which the 
various essential elements to the successful operation of the tobacco 
business from any particular aspect have been so separated under 
various subordinate combinations, yet so unified by way of the 
control worked out by the scheme here condemned, are so involved 
that any specific form of relief which we might now order in sub- 
stance and effect might operate really to injure the public and, 
it may be, to perpetuate the wrong. Doubtless it was the presence 
of these difficulties which caused the United States, in its prayer 
for relief to tentatively suggest rather than to specifically demand 
definite and precise remedies. We might at once resort to one or 
the other of two general remedies — a, the allowance of a permanent 
injunction restraining the combination as a universality and all 
the individuals and corporations which form a part of or cooperate 
in it in any manner or form from continuing to engage in interstate 
commerce until the illegal situation be cured, a measure of rehef 
which would accord in substantial effect with that awarded below 
to the extent that the court found illegal combinations to exist; 
or, h, to direct the appointment of a receiver to take charge of the 
assets and property in this country of the combination in all its 
ramifications for the purpose of preventing a continued violation 
of the law, and thus working out by a sale of the property of the 
combination or otherwise, a condition of things which would not 
be repugnant to the prohibitions of the act. But, having regard 
to the principles which we have said must control our action, we 
do not think we can now direct the immediate application of either 
of these remedies. We so consider as to the first because in view 
of the extent of the combination, the vast field which it covers, 
the all-embracing character of its activities concerning tobacco and 
its products, to at once stay the movement in interstate commerce 
of the products which the combination or its cooperating forces 
produce or control might inflict infinite injury upon the public by 
leading to a stoppage of supply and a great enhancement of prices. 
The second because the extensive power which would result from 
at once resorting to a receivership might not only do grievous injury 
to the public, but also cause widespread and perhaps irreparable 
loss to many innocent people. Under these circumstances, taking 
into mind the complexity of the situation in all of its aspects and giv- 
ing weight to the many-sided considerations which must control ouf 
judgment, we think, so far as the permanent relief to be awarded is 



424 Industrial Combinations and Trusts 

concerned, we should decree as follows: ist. That the combination 
in and of itself, as well as each and all of the elements composing it, 
whether corporate or individual, whether considered collectively 
or separately, be decreed to be in restraint of trade and an attempt 
to monopoHze and a monopoUzation within the first and second 
sections of the Anti-trust Act. 2d. That the court below, in order 
to give effective force to our decree in this regard, be directed to 
hear the parties, by evidence or otherwise, as it may be deemed 
proper, for the purpose of ascertaining and determining upon some 
plan or method of dissolving the combination and of recreating, out 
of the elements now composing it, a new condition which shall be 
honestly in harmony with and not repugnant to the law. 3d. That 
for the accomplishment of these purposes, taking into view the 
difficulty of the situation, a period of six months is allowed from the 
receipt of our mandate, with leave, however, in the event, in the 
judgment of the court below, the necessities of the situation require, 
to extend such period to a further time not to exceed sixty days. 
4th. That in the event, before the expiration of the period thus 
fixed, a condition of disintegration in harmony with the law is not 
brought about, either as the consequence of the action of the court 
in determining an issue on the subject or in accepting a plan agreed 
upon, it shall be the duty of the court, either by way of an injunc- 
tion restraining the movement of the products of the combination 
in the channels of interstate or foreign commerce or by the appoint- 
ment of a receiver, to give effect to the requirements of the statute. 

Exhibit 3 

DECREE against THE POWDER COMBINATION ^ 

Second. — Is the combination which we have found to exist one that is 
obnoxious to the provisions of the anti-trust act? 

The recent decisions of the Supreme Court in Standard Oil Co. v. 
United States, and American Tobacco Co. v. United States, make 
it quite clear that the language of the anti-trust act is not to receive 
that Hteral construction which will impair rather than enhance 

^ United States of America v. E. I. dii Pont de Nemours &" Company et al. 
Opinion of the Court and Interlocutory Decree, In the Circuit Court of the 
United States for the District of Delaware, pp. 35-45. Handed down June 21, 
1911. 



Recent Trust Decisions 425 

freedom of interstate commerce. As we read those decisions, re- 
straint of interstate trade and restraint of competition in interstate 
trade are not interchangeable expressions. There may be, under the 
anti-trust act, restraint of competition that does not amount to 
restraint of interstate trade, just as before the passage of the act 
there might have been restraint of competition that did not amount 
to a common-law restraint of trade. This fact was plainly recog- 
nized in United States v. Joint Traffic Association, 171 U. S. 505, 
567, where Mr. Justice Peckham said: 

"We might say that the formation of corporations for business or 
manufacturing purposes has never, to our knowledge, been regarded 
in the nature of a contract in restraint of trade or commerce. The 
same may be said of the contract of partnership. It might also be 
difficult to show that the appointment by two or more producers of 
the same person to sell their goods on commission was a matter in 
any degree in restraint of trade. We are not aware that it has ever 
been claimed that a lease or purchase by a farmer, a manufacturer 
or merchant of an additional farm, manufactory or shop, or the with- 
drawal from business of any farmer, merchant or manufacturer, 
restrained commerce or trade within the legal definition of that 
term." 

While all this is true, the recent decisions of the Supreme Court 
make it equally clear that a combination cannot escape the con- 
demnation of the anti-trust act merely by the form it assumes or by 
the dress it wears. It matters not whether the combination be "in 
the form of a trust or otherwise," whether it be in the form of a 
trade association or a corporation, if it arbitrarily uses its power to 
force weaker competitors out of business or to coerce them into a 
sale to or union with the combination, it puts a restraint upon inter- 
state commerce and monopolizes or attempts to monopoHze a part 
of that commerce in a sense that violates the anti-trust act. The 
record of the case now before us shows that from 1872 to 1902, a 
period of thirty years, the purpose of the trade associations had been 
to dominate the powder and explosives trade in the United States, 
by fixing prices, not according to any law of supply and demand, for 
they arbitrarily limited the output of each member, but according 
to the will of their managers. It appears, further, that although 
these associations were not always strong enough to control abso- 
lutely the prices of explosives, their purpose to do so was never 
abandoned. Under the last of the trade association agreements— 
the one dated July i, 1896, and which was in force until June 30, 



426 Industrial Combinations and Trusts 

1904 — the control of the combination was firmer than it had before 
been. Succeeding the death of Eugene du Pont in January, 1902, 
and the advent of Thomas Coleman du Pont and Pierre S. du Pont, 
the attempt was made to continue the restraint upon interstate 
commerce and the monopoly then existing by vesting, in a few cor- 
porations, the title to the assets of all the corporations affiliated with 
the trade association, then dissohdng the corporations whose assets 
had been so acquired, and binding the few corporations owning the 
operating plants in one holding company, which should be able to 
prescribe policies and control the business of all the subsidiaries 
without the uncertainties attendant upon a combination in the 
nature of a trade association. That attempt resulted in complete 
success. Much the larger part of the trade in black and smokeless 
powder and dynamite in the United States is now under the control 
of the combination supported by the 28 defendants above named. 
That combination is the successor of the combination in existence 
from 1896 to June 30, 1904. It is a significant fact that the trade 
association, organized under the agreement of July i, 1896, was not 
dissolved until June 30, 1904. It had been utilized untU that date 
by Thomas Coleman du Pont, Pierre S. du Pont and Alfred I. du 
Pont in suppressing competition and thereby building up a mo- 
nopoly. Between February, 1902, and June, 1904, the combina- 
tion had been so completely transmuted into a corporate form that 
the trade association was no longer necessary. Consequently, the 
trade association was dissolved and the process of dissolving the 
corporations whose capital stocks had been acquired, and concen- 
trating their physical assets in one great corporation, was begun. 
Before the plan had been fully carried out this suit was commenced. 
The proofs satisfy us that the present form of the combination is no 
less obnoxious to the law than was the combination under the trade 
association agreement, which was dissolved on June 30, 1904. The 
28 defendants are associated in a combination which, v/hether the 
indi\ddual defendants were aware of the fact or not, has violated 
and still plans to \dolate both section i and section 2 of the anti- 
trust act. We conclude that it is our plain duty to grant such a 
decree as will prevent and restrain further violations of the act. 

Third. — The third and last question therefore is, what shall be the 
nature of the decree? 

It must be one of dismissal of the petition as to all of the defend- 
ants except the 28 who are found to be interested in and supporters 
of the unlawful combination. 



Recent Trust Decisions 427 

It is contended by counsel for the defendants that there can be 
no decree against the 28 defendants for the reason that the title to 
the property held by the defendant corporations cannot be impaired 
by any decree of this Court. "The most that the Government in any 
event can claim," say the coimsel, "is that prior to the organization 
of the present defendant companies there did exist contracts and 
combinations in restraint of trade, and possibly a monopoly of the 
explosive industry in the United States, and that such combinations 
and monopoly were participated in by some of the corporations 
which were later purchased by the present defendants, and possibly 
that some of the properties that were owned by the corporations 
that were purchased by the present defendants had been acquired 
by such corporations as a result of such combinations and mo- 
nopoly. . . Even so, the corporations had title to such properties, 
and if such combinations and monopolies no longer exist the title to 
such property must be good in subsequent purchasers thereof." 
To support this argument Brooks v. Martin, 2 Wall. 71, and other 
cases, are referred to. But we have found that the corporations 
organized after the advent into the explosives business of Thomas 
Coleman du Pont and Pierre S. du Pont are a part of an existing 
combination in restraint of interstate trade. The du Pont Com- 
pany of 1902 co-operated with the advisory and special committees 
of the trade association from April 2, 1902, to June 30, 1904, in 
fixing prices, apportioning trade amongst the members of the asso- 
ciation, allowing rebates, and forcing competitors to submit to their 
rule. The du Pont Company of 1903 was created to aid the com- 
bination in concentrating its power and fastening its hold on the 
monopoly which it had sedulously built up, and which brought to 
its members in the short period of six years, the enormous profit of 
$11,000,000 in dividends and $12,000,000 or $13,000,000 in its 
surplus account. We do not propose by our decree to deal with titles 
to property. Our power is defined in the fourth section of the anti- 
trust act. That section invests us "with jurisdiction to prevent and 
restrain violations" of the act. The same section provides that the 
petition may contain a prayer that the violation of law therein 
alleged " shall be enjoined or otherwise prohibited." It is our pur- 
pose, as it is our duty, to exert the power thus conferred on us to the 
extent necessary to "prevent and restrain" further violations of the 
act. In other words, the relief we can give in this proceeding is 
preventive and injunctive only. If our decree, limited to that pur- 
pose, shall necessitate a discontinuance of present business methods, 



428 Industrial Combinations and Trusts 

it is only because those methods are illegal. The incidental results 
of a sweeping injunction may be serious to the parties immediately 
concerned, but, in carrying out the command of the statute, which 
is as obligatory upon this court as it is upon the parties to this suit, 
such results should not stay our hand; they should only challenge 
our care that our decree be no more drastic than the facts of the case 
and the law demand. 

The dissolution of more than sixty corporations since the advent 
of the new management in 1902, and the consequent impossibility of 
restoring original conditions in the explosives trade, narrows the 
field of operation of any decree we may make. It should not make 
the decree any the less effective, however. In the Standard Oil case 
Mr. Chief Justice White said: 

"It may be conceded that ordinarily where it was found that acts 
had been done in violation of the statute, adequate measure of relief 
would result from restraining the doing of such acts in the future. 
Swift V. United States, 196 U. S. 375. But in a case like this, where 
the condition which has been brought about in violation of the 
statute, in and of itself, is not only a continued attempt to mo- 
nopolize but also a monopolization, the duty to enforce the statute 
requires the application of broader and more controlling remedies. 
As penalties which are not authorized by law may not be inflicted by 
judicial authority, it follows that to meet the situation with which 
we are confronted the application of remedies two-fold in character 
becomes essential; ist, to forbid the doing in the future of acts like 
those which we have found to have been done in the past which would 
be violative of the statute; 2nd, the exertion of such measure of relief 
as will effectually dissolve the combination found to exist in viola- 
tion of the statute, and thus neutralize the extension and continu- 
ally operating force which the possession of the power unlawfully 
obtained has brought and will continue to bring about." 

Both of these remedies are as clearly demanded in the present case 
as they were in the Standard Oil case. The existing combination in 
the explosives trade is one in restraint of interstate commerce. Its 
sales board fixes prices and exercises powers which Mr. Haskell, its 
chairman, admits are even more extended in their scope than were 
the powers of the advisory and special committees which the sales 
board superseded on June 30, 1904, after co-operating with them 
from July, 1903. It has also attempted to monopolize and is at- 
tempting to monopolize, and has monopolized and is now in the 
possession of a monopoly of, a large part of the explosives trade in 



Recent Trust Decisions 429 

the United States. Our decree must therefore be one which will 
forbid future acts violative of the law and compel a dissolution of 
the combination existing in violation of the law. To stop the busi- 
ness of the combination immediately, however, might be attended 
with very disastrous consequences. The defendants, or some of 
them, for example, furnish military and ordinance powders to the 
United States Government. We understand, also, that they fur- 
nish explosives used in the construction of the Panama Canal. 
Their ability to continue so to do should not be destroyed before the 
expiration of a reasonable time for adjusting their business to the 
changed conditions. In the Standard Oil and American Tobacco 
cases six months were allowed for making the changes necessitated 
by the decrees entered therein. What time should be allowed in the 
case now in hand, and what other details should be embodied in the 
final decree, we cannot now determine. The present decree will 
therefore be interlocutory. It will adjudge that the 28 defendants 
are maintaining a combination in restraint of interstate commerce 
in powder and other explosives in violation of section i of the anti- 
trust act, that they have attempted to monopolize and have mo- 
nopolized a part of such commerce in violation of section 2 of that 
act, that they shall be enjoined from continuing said combination, 
and that the combination shall be dissolved 

Exhibit 4 
decree against the standard sanitary manufacturing 



COMPANY 



The ware is absolutely unpatented. Anyone may sell it as freely 
as he may a loaf of bread. No one can tell by looking at a bathtub 
whether enameled powder has been sprinkled upon it by a patent 
dredger any more than anyone who eats a loaf of bread can tell 
whether it has been baked in an oven with a patented grate, or who 
lights a kerosene lamp can tell whether, in the process of refining, a 
patented tool has been used, or by taking a pinch of snuff can be 
sure that there was or not a patented mill used in grinding the 
tobacco. 

^ United States of America v. The Standard Sanitary Manufacturing Com- 
pany. Opinion of the Court on Final Hearing, In the Circuit Court of the 
United States for the District of Maryland, pp. 33-47. Handed down, Oct. 13th, 
191 1. For a brief history of the Bathtub combination see Stevens, W. S., 
Quarterly Journal of Economics, August, 191 2, Vol. XXVI, pp. S93ff. 



430 Industrial Combinations and Trusts 

If agreements in this case are not violations of the Sherman Act, 
similar agreements among all the bakers of bread, the refiners of 
petroleum, the grinders of snuff will be legal, provided that some- 
where in the process of making the bread, refining the petroleum, 
or grinding the snuff a patented tool has been used. 

The issue is important. It cuts deep. The record squarely pre- 
sents it. It must be passed upon. 

The defendants say they have broken no law even if all that has 
thus far been said herein be true. 

They rely upon what they understand to have been decided by 
the Circuit Court of Appeals of the Seventh Circuit in the case of the 
Rubber Tire Wheel Co. v. Milwaukee R. W. Co. (154 Fed. 358). 

There the court said that no one can use a patented article with- 
out the consent of the patentee. He may fix his own conditions. It 
adds, ''Whatever the terms the courts will enforce them, provided 
only that the licensee is not thereby required to violate some law 
outside of the patent laws, like the doing of murder or arson." 



. . . At common law and by statute monopolies are unlawful. At 
common law and by statute a man who invented a new and useful 
thing might be given a right which would enable him for a Umited 
time effectually to monopolize it. The courts have said that this 
right to monopolize what he invented can not be taken from a 
patentee by State laws. They say it has not been taken away by 
Congress. All men know that Congress never intended, when it 
passed the Sherman Act, to change the patent law. It did not do so. 
The patentee may, in spite of that law, monopolize for the term of 
his patent the thing which he or his assignor invented. Neither at 
common law nor in this country by statute has he ever had a right 
to monopolize anything else. As to everything not validly claimed 
in his patent he is as other men. If by the common law or the stat- 
utes of the State or by the enactments of Congress men are forbid- 
den to restrain trade or to monopolize it, a patentee may not re- 
strain trade or attempt to monopolize it in anything except that 
which is covered by his patent. 

A patent is a grant of a right to exclude all others from making, 
using, or selHng the invention covered by it. It does not give a 
right to the patentee to sell indulgences to violate the law of the 
land, be it the Sherman Act or another. 

The right to exclude others is the property of the patentee. It is 



Recent Trust Decisions 431 

his very own. He may do with it as he will. A very rich man may 
have $100,000,000 of cash. It is his property. It is his very own. 
He may do with it as he will. Neither one of them can use his 
property to bring about a violation of law. A patentee who monop- 
olizes his invention breaks no law. He who uses his property 
right to exclude others from the making, selling, or using his inven- 
tion for the purpose and with the effect of making a combination to 
restrain trade in something from which his patent gives him no 
right to exclude others, does break the law. He breaks it precisely 
as the individual defendants in the Standard Oil and American 
Tobacco Cos. broke it. They had the same right to use their brains, 
their capital, and their credit as they thought best, as he had to 
use his right to exclude all others from making, using, or selling 
automatic dredgers. He was subject to the same limitations as 
they were. They could not lawfully use their brains, their money, 
and their credit to restrain trade in petroleum and tobacco. He can 
not use his patent rights to restrain trade in unpatented bathtubs. 
The defendants have pressed upon our attention many cases in 
the Circuit Courts and in the Circuit Courts of Appeal. Many of 
them have upheld the right of a patentee to fix the price below which 
a purchaser from him of patented articles may not sell those articles. 
In some of these cases it has been held that one who sells at a lower 
price thereby becomes an infringer and that the Federal Courts 
have jurisdiction of a suit brought against him on account of such 
sale, irrespective of the amount in controversy or the citizenship 
of the parties. 



The Supreme Court has in several recent cases expressly said 
that it was not be to understood as expressing any opinion as to 
whether such restrictions when appUed to patented articles were 
or were not valid 



Wayman did not sell patented dredgers on condition that the 
purchasers should not resell them below a fixed price. The question 
of whether such restrictions upon the sale of patented articles are 
valid is not before us. We neither decide it nor intimate any opin- 
ion upon it. 



432 Industrial CoMBmATioxs and Trusts 

What has been said is sufficient for the determination of this 
case. The ware is not patented. The agreements or Hcenses at- 
tempt to fix the price of unpatented ware and to monopohze the 
trade in it. The fact that Wayman had a patent on something 
else, even though it was a tool used in one step of the making of the 
ware, gives neither him nor his licensees the right to restrain inter- 
state trade in the ware. The ownership of a patent for a tool by 
which old, well-known, and unpatented articles of general use can 
be more cheaply made gives no right to combine the makers and 
dealers in the unpatented articles in an agreement to make the 
public pay more for it. 



In what has been said it has been assumed that Wayman was the 
real and substantial owner of the patents; that the scheme was his; 
that his purpose was merely to make money for himself by seUing 
to the corporate defendants indulgences to sin against the Sherman 
Act. 

The Govermnent contends that this was not the real situation. 
In its view there is nothing before the court except an ordinary 
combination to raise and maintain wholesale and retail prices and 
to force all the makers and dealers in the country into it. Wayman, 
it says, was nothing more than the ordinary promoter. The pat- 
ents served the purpose of the certificate of incorporation from New 
Jersey or Delaware used when the combination became a consoli- 
dation. We have not discussed this branch of the case. We ^-ill 
not. We refrain from doing so not because it would not be perti- 
nent. It would. Ordinarily it would receive full consideration. 
Unusual circumstances shown by the record make it inexpedient 
and even improper to do so if the case can be disposed of -without 
commenting upon that aspect of it. 



. . . Against the other defendants, corporate and individual, the 
Government is entitled to injunctive relief substantially as prayed 
for. In view of the pendency of the criminal case all characteriza- 
tion of what the defendants have done not necessary to the effective- 
ness of the decree should be omitted from it. The Government may 
submit a draft of a decree to the counsel for the defendants. If an 
agreement can not be speedily had we will upon application fix an 
early day for its settlement. 



Recent Trust Decisions 433 



Exhibit 5 

decree of injunction against the southern wholesale 
grocers association ^ 

I. That the said defendants, The Southern Wholesale Grocers' 
Association and all the members of said association, The Southern 
Wholesale Grocers' Association, a corporation, The McLester- 
Van Hoose Company, James A. Van Hoose, Robert McLester, 
The Alabama Grocery Company, S. W. Lee, Joseph H. Mc- 
Laurin, L. M. Hooper, F. E. Hashagen, C. W. Bartleson, Robert 
Moore, Thomas C. Davis, B. B. Earnshaw, C. C. Guest, T. H. Sco- 
vell, W. T. Reeves, R. A. Morrow, J. H. C. Wulburn, J. D. Faucette, 
W. A. Scott, and James W. Lee, and each and all of them, their 
directors, officers, agents, servants, and employees, and all persons 
acting under, through, by, or in behalf of them or either of them, or 
claiming so to act be, and they are hereby, perpetually enjoined, 
restrained, and prohibited from combining, conspiring, confederat- 
ing, or agreeing together or with others expressly or impliedly, 
directly or indirectly, to prevent manufacturers or producers en- 
gaged in selling or shipping commodities among the several States 
and in the District of Columbia from selling such commodities to 
any person who is not a member of the said The Southern Whole- 
sale Grocers' Association, or who is not listed on the so-called 
Green Book, published by said association, its officers, and agents, 
and entitled "Official List of Wholesale Grocers in the States of 
Alabama, Arkansas, District of Columbia, Florida, Georgia, Indian 
Territory, Louisiana, Maryland, Mississippi, North Carolina, 
Oklahoma, South Carolina, Tennessee, Texas, and Virginia," or 
any book, pamphlet or list of like character; and they and each of 
them be, and are likewise enjoined, restrained, and prohibited from 
publishing, causing to be published, aiding, assisting, or encourag- 
ing the publication, distribution, or circulation of any book, pam- 
phlet, or list wherein is contained only the names of wholesale 
grocers located in the territory embraced by said organization who 
have announced their intention or agreed, directly or indirectly, 
expressly or impliedly, to work in harmony with said association. 

They are also enjoined, restrained, and proliibited from publish- 

1 United States of America v. The Southern Wholesale Grocers Association 
et al. Decree of Injunction, In the Circuit Court of the United States for the 
Northern District of Alabama, pp. 4-9. Handed down October 17th, 191 1. 



434 Industrial Combinations and Trusts 

ing or distributing, or causing to be published or distributed, or 
aiding or assisting or encouraging in the pubHcation or distribution 
of any Hst or Hsts of manufacturers or producers who have, ex- 
pressly or impUedly, directly or indirectly, agreed to sell only to 
members of said association, or to persons, firms, or corporations 
listed in said Green Book, or book, pamphlet, or list of like 
character. 

2. That the said defendants and each and all of them, their 
directors, ofiicers, agents, servants, and employees, and all persons 
acting under, through, by, or in behalf of them, or either of them, 
or claiming to so act, be, and they are hereby, enjoined, restrained, 
and prohibited from combining, conspiring, confederating, and 
agreeing together or with others to fix a price at which any com- 
modity shall be sold, or to coerce manufacturers and producers en- 
gaged in selhng and shipping commodities among the several States, 
and in the District of Columbia, to fix a limited selling price at 
which such commodities are to be sold, and to have such price 
printed on cards and distributed; and they are hereby enjoined, 
restrained, and prohibited from printing, causing to be printed, 
or encouraging or aiding in the printing of such cards, or their dis- 
tribution; and they and each of them are likewise enjoined, re- 
strained, and prohibited from conspiring, confederating, or agreeing 
together or with others, expressly or impliedly, directly or indirectly, 
to prevent such manufacturers and producers from selling and 
shipping commodities to any wholesale grocer who does not main- 
tain the price so fixed and listed; and they and each of them are 
likewise enjoined, restrained, and prohibited from demanding and 
receiving from any such manufacturer or producer any rebate, 
bonus, or emolument of any kind to be paid to any wholesale dealer 
or jobber for and on account of the fact that he has maintained the 
limited seUing price; and are likewise enjoined, restrained, and 
prohibited from paying or delivering any such rebate, bonus, or 
emolument of any kind, directly or indirectly, to any such whole- 
sale grocer or jobber who has maintained such limited selhng price, 
or demanding or receiving any fine or penalty, directly or indirectly, 
from any wholesale grocer or jobber engaged in commerce among 
the several States and in the District of Columbia for and on ac- 
count of such wholesale grocer or jobber not having maintained 
said Hmited selling price. 

3. That said defendants and each and all of them, their directors, 
officers, agents, servants, and employees, and all persons acting 



Recent Trust Decisions 435 

under, through, by, or in behalf of them, or either of them, or claim- 
ing so to act, be, and they are hereby, perpetually enjoined, re- 
strained, and prohibited from conspiring, confederating, or agreeing 
together or with others, expressly or impliedly, directly or indi- 
rectly, to boycott any manufacturer or producer, wholesaler, or 
jobber engaged in commerce among the several States and in the 
District of Columbia for and on account of any such manufacturer, 
producer, wholesaler or jobber having sold or transported in inter- 
state commerce any commodity to any person, firm, or corporation 
who is not a member of said association or who does not maintain the 
said limited selling price or who is not listed in the said Green Book 
or book, pamphlet, or list of like character; and also from combining, 
conspiring, confederating, and agreeing together, or with others, 
expressly or impHedly, directly or indirectly, to prevent any person, 
firm, or corporation who refuses to join said association or who 
refuses to maintain said limited selling price or who sells com- 
modities direct to the consumer from purchasing such commodities 
from manufacturers, jobbers, producers, or wholesalers engaged in 
commerce among the several States and in the District of Columbia; 
and also from conspiring, confederating, and agreeing together or 
with others, expressly or impliedly, directly or indirectly, to increase 
jobbers' profits by increasing prices at which wholesalers and jobbers 
shall sell any commodity in interstate commerce. 

4. That said defendants and each and all of them, their directors, 
officers, agents, servants, and employees, and all persons acting 
under, through, by, or in behalf of them, or either of them, or claim- 
ing so to act, be, and they are hereby, perpetually enjoined, re- 
strained, and prohibited from conspiring or agreeing together or 
with others, expressly or impliedly, to do or to refrain from doing 
anything the purpose or effect of which is to fix or maintain the 
price at which any commodity employed or intended to be employed 
in commerce among the several States and in the District of Co- 
lumbia shall or should be sold by any manufacturer, jobber, whole- 
saler, or retailer, or the purpose or effect of which is to hinder or 
prevent, by intimidation or coercion, any person, firm, or corpora- 
tion from buying or selling any such commodity wherever, when- 
ever, from and to whomsoever and at whatsoever price may be then 
and there agreed upon by the seller and purchaser. 

5. The Southern Wholesale Grocers' Association, its officers and 
members, and all who shall hereafter become officers and members 
of said association, are hereby perpetually enjoined and inhibited 



436 Industrial Combinations and Trusts 

from doing, or combining or conspiring to do, either or any of said 
acts. The said association and its officers and members are not 
restrained from maintaining said organization for social or other 
purposes than those herein prohibited. 



Exhibit 6. 

DECREE against THE GENERAL ELECTRIC COMPANY.^ 

Second: That the General Electric Company is the owner of the 
entire capital stock of the National Electric Lamp Company, and, 
at the time of the filing of the petition herein, was the owner of the 
majority of said stock; that the said National Electric Lamp Com- 
pany is in turn the owner of the entire capital stock of the subsidiary 
companies hereinafter named; that such stock ownership has been 
concealed from the general public and the trade; that notwith- 
standing such stock ownership the General Electric Company, the 
National Electric Lamp Company, and the latter's subsidiary 
companies hereinafter named, are pretending to be separate, dis- 
tinct, independent and competing companies, in the business of 
manufacturing, dealing in and selling incandescent electric lam^ps, 
w^hereas no such independence or competition exists or has existed, 
and that the General Electric Company has heretofore been largely 
engaged in carrying on the incandescent lamp business indirectly 
through said companies. 

It is, therefore, adjudged, ordered and decreed, that the defend- 
ants, National Electric Lamp Company and all its subsidiary com- 
panies , , be each and all of them dissolved, and the 

General Electric Company is enjoined from hereafter conducting, 
except in its own name, the business heretofore or hereafter carried 
on by it in incandescent lamps of any and every description; and 

It is further adjudged, ordered and decreed that all factories, 
plants, and manufacturing and selling departments operated or 
owned by said General Electric Company, for the manufacture and 
sale of incandescent lamps, shall be made known to the general 
public and trade as the property and business of the said General 
Electric Company; 

^ United States of America v. General Electric Company et al. Final Decree, 
In the Circuit Court of the United States for the Northern District of Ohio, 
Eastern Division, pp. 3-10. Handed down Oct. 12, 191 1. For a brief history 
of the Electric Lamp combination see Stevens, W. S., Quarterly Journal of 
Economics, August 191 2, Vol. XXVI, pp. 593ff. 



Recent Trust Decisions 437 

Third: That the General Electric Company and each and all of 
the Lamp Manufacturing Defendants as defined in clause fourth, 
their officers, agents and servants be and they hereby are restrained, 
enjoined and forbidden from making or carrying out directly or 
indirectly, any contracts with any manufacturer or manufacturers of 
lamp-making machinery, or with any manufacturer or manufac- 
turers of bulbs and tubing for incandescent lamps, whereby such 
manufacturers or any of them fhall be bound not to sell the goods, 
manufactured by them, respectively, to others than the said de- 
fendants or any of them, or hindered from so doing or obligated to 
sell to the said defendants or any of them at other and different 
prices and terms of payment than those to which they severally 
may sell to other purchasers. 

Fourth: That the General Electric Company and each and all of 
the said defendants mentioned in clause second hereof, together with 
the Westinghouse Electric and Manufacturing Company, Westing- 
house Lamp Company, Aetna Electric Company, The Capital 
Electric Company, The Franklin Electric Manufacturing Company, 
Liberty Electrical Manufacturing Company, and Howard Gilmore 
and William Gilmore, doing business as the Gilmore Electric Com- 
pany, all said defendants being collectively herein designated "The 
Lamp Manufacturing Defendants," are enjoined from fixing by 
combination, agreement, understanding or any other acts between 
any two, more or all of them, or between them or any of them and 
others, the price or prices at which any incandescent electric lamp 
or lamps of any pattern, character, type or description, whether 
made or sold under letters patent, license or otherwise, shall be sold 
or dealt in, either at wholesale or retail; provided that any of the 
defendants lawfully owning patents may grant to another defendant 
or to others, or may receive appropriate manufacturing licenses 
xmder such patents, or under any patents law^fuUy owned by any of 
the defendants or others, upon terms and conditions fixed only by 
the licensors; provided further, that any such Hcensor is hereby 
enjoined and prohibited from requiring or imposing upon the li- 
censee the fixing of a resale price to be observed by the licensee's 
vendees; and the purchasers of such lamps from either the Ucensor 
or from the licensee or from, the vendees of either the licensor or 
licensee, whether at wholesale or retail, shall not be in any manner 
restricted as to the price at which such lam.ps shall be sold to the 
public or to any dealer or consumer. 

Fifth: That the General Electric Company and the other above- 



438 Industrial Combinations and Trusts 

mentioned Lamp Manufacturing Defendants are enjoined from 
maintaining, by agreement, differentials between lamps which do 
not in fact differ in quality or efficiency, and said defendants are 
enjoined from allowing discounts based on aggregate purchases 
from different manufacturers. 

Sixth: That the General Electric Company and the other above- 
named Lamp Manufacturing Defendants, and each of them, their 
officers, agents and servants, are perpetually enjoined and restrained 
from making or enforcing any contracts, arrangements, agreements 
or requirements with dealers, jobbers and consumers, who buy from 
the said defendants either tantalum filament, tungsten filament, 
metalized carbon filament or ordinary carbon filament lamps, or any 
of them, by which such dealers, jobbers and consumers are com- 
pelled to purchase all their ordinary carbon filament lamps from said 
defendants as a condition to obtaining such other types of lamps, or 
any of them, or by which dealers, jobbers and consumers are com- 
pelled to purchase any one or more of the above-mentioned types of 
lamps from the said defendants as a condition to the purchase or 
supply of any other or all of said types of lamps; and the said General 
Electric Company and the Lamp Manufacturing Defendants afore- 
said are perpetually enjoined and restrained from discriminating 
against any dealer, jobber or consumer desiring to purchase tantalum, 
tungsten or metalized carbon filament lamps because of the fact that 
such dealer, jobber or consumer purchases ordinary carbon filament 
lamps from others, and are perpetually enjoined and restrained from 
discriminating against any dealer, jobber or consumer desiring to 
purchase any one or more of the above-mentioned types of lamps 
because of the fact that such dealer, jobber or consumer purchases 
any other of said lamps from other manufacturers or dealers. 

Seventh: That the General Electric Company and the others of 
the said Lamp Manufacturing Defendants are perpetually enjoined 
and restrained when making discounts based on the quantity of 
lamps purchased by any dealer, jobber or consumer from making 
such discounts on the basis of the total quantity of tungsten, tanta- 
lum, metalized carbon and ordinary carbon filament lamps sold, or 
the total quantity of ordinary carbon filament lamps and any one 
or more of such other types of lamps sold; and the General Electric 
Company and the others of the said Lamp Manufacturing Defend- 
ants are further perpetually enjoined and restrained from making 
any discounts based on the total quantity of any two or more types 
of lamps sold, when the result is to combine or aggregate the discount 



Recent Trust Decisions 439 

on both an unpatented lamp and a lamp patented or claimed to be 
patented; and that said defendants and each and all of them are 
perpetually enjoined from utilizing any patents which they may 
have or claim to have or which they may hereafter acquire or claim 
to have acquired, as a means of controlling the manufacture or sale 
of any type or types of lamps not protected by lawful patents. 

Eighth: That the General Electric Company and the other de- 
fendants are each enjoined and restrained from offering or making 
more favorable prices or terms of sale for incandescent electric lamps 
to the customers of any rival manufacturer or manufacturers than 
it at the same time offers or makes to its established trade, where 
the purpose is to drive out of business such rival manufacturer or 
manufacturers, or otherwise unlawfully to restrain the trade and 
commerce of the United States in incandescent electric lamps; pro- 
vided that no defendant is enjoined or restrained from making any 
prices for incandescent electric lamps to meet, or to compete with, 
prices previously made by any other defendant, or by any rival 
manufacturer; and provided further than nothing in this decree 
shall be taken in any respect to enjoin or restrain fair, free and open 
competition. 

Ninth: That the General Electric Company, as licensor, on the 
one hand, and Westinghouse Electric and Manufacturing Company, 
The Capital Electric Company, The Aetna Electric Company, The 
Franklin Electric Manufacturing Company, The Liberty Electrical 
Manufacturing Company, and Howard Gilmore and WiUiam Gil- 
more, trading as the Gilmore Electric Company, as licensees, and 
each and every one of them, and their officers, agents and servants, 
are hereby perpetually enjoined and restrained from operating under 
any license contracts or agreements so far as such contracts or 
agreements provide that prices and terms of sale of incandescent 
electric lamps shall be fixed otherwise than by the Hcensor, or con- 
taining provisions fixing the prices at which any purchaser or any 
vendee from a manufacturer shall sell incandescent electric lamps. 



CHAPTER XIV 

METHODS OF DISSOLUTION 

NOTE 

This chapter scarcely requires a headnote. The dissolutions of 
both the Standard Oil and Tobacco combinations are recent history. 
It is, therefore, almost needless to state that these dissolutions 
grew out of the decrees handed down by the Supreme Court in the 
spring of 191 1. The third exhibit in the chapter is the dissolution 
plan of the Powder Trust. This decree followed the Interlocutory 
Decree reprinted as Exhibit 3 in the preceding chapter. — Ed. 

Exhibit i 
the dissolution of the american tobacco company.^ 
And it is further ordered, adjudged, and decreed, that said plan 
as modified by the consent of the parties, or through the action 
of this court as aforesaid, is as follows, to wit: 

A. 

DISSOLUTION OF AMSTERDAM SUPPLY CO. 

Amsterdam Supply Co. is a company engaged in the business of 
purchasing for a commission or brokerage, supplies, other than 
leaf tobacco, its principal customers being defendant corporations 
herein. It has $235,000 at par of stock, all held in var3dng amounts 
by certain corporation defendants, one or the other of your petition- 
ers, and a surplus of $127,058.74. 

It is proposed that Amsterdam Supply Co. be dissolved, convert- 
ing its assets into cash and distributing them to its stockholders. 

B. 

ABROGATION OF FOREIGN RESTRICTIVE COVENANTS. 

Under the contracts of September 27, 1902, the Imperial Tobacco 
Co. (of Great Britain and Ireland, Ltd.) and certain of its directors 

^ United States of America v. American Tobacco Company. In the Circuit 
Court of the United States for the Southern District of New York, Opinions of 
the Court, and Decree pp. 36-69. The draft here given is from a copy of the 
decree in Hearings before the Committee on Interstate Commerce, United 
States Senate, 62nd Cong. 2nd Sess. 1911-1912 pp. 290 ff. This accounts for 
slight differences in punctuation, the use of italics and abbreviations. — Ed. 

440 



Methods of Dissolution 441 

agreed not to engage in the business of manufacturing or selling 
tobacco in the United States, the American Tobacco Co. and Ameri- 
can Cigar Co. and certain of their directors agreed not to engage 
in the business of manufacturing or selKng tobacco in Great Britain 
and Ireland; and the American Tobacco Co., American Cigar Co., 
and the Imperial Tobacco Co. agreed not to engage in the business 
of manufacturing or selling tobacco in countries other than Great 
Britain and Ireland and the United States. Under the provisions 
of these contracts British- American Tobacco Co. (Ltd.) was 
organized and took over the export businesses of the American 
Tobacco Co., and the Imperial Tobacco Co., with factories, mate- 
rials, and supplies. 

It is proposed that the covenants herein just described as well 
as all covenants restricting the right of any company or individual 
in the combination to buy, manufacture, or sell tobacco or its prod- 
ucts, be rescinded by the affirmative action of the respective 
parties thereto who are parties to this suit, except such of said 
covenants, whether or not contained in the contracts of Septem- 
ber 27, 1902, as (a) relate wholly to business in foreign countries and 
are covenants the benefit whereof has been assigned or transferred 
to other parties; or (b) are covenants exclusively between foreign 
corporations and relating wholly to business in or between foreign 
countries; and that the said contracts of September 27, 1902, be 
altogether terminated so far as they impose any obligations upon 
any of the parties thereto to furnish or to refrain from furnishing 
manufactured tobaccos to any party, each company to treat as 
its own, but only to the extent provided for in said contracts, all 
brands and trademarks which by said contracts it was given the 
right to manufacture and sell, the said rights having been perpetual 
and constituting in effect a conveyance of the brands and trade- 
marks used for the countries in which they were so used by each of 
said companies as aforesaid. 

C. 

ABROGATION OF DOMESTIC RESTRICTIVE COVENANTS. 

It is proposed that covenants given by vendor corporations, 
partnerships, or individuals, or by stockholders of vendor corpora- 
tions, to vendee corporations defendants herein, not to engage 
in the tobacco business or any other business in any way embraced 
in the combination, be terminated so that all such covenanters 



442 Industrial Combinations and Trusts 

shall be at liberty to engage in the business of buying, manufactur- 
ing, and dealing in tobacco and its products just as if such covenants 
had not been made. 

D. 

disintegration of accessory companies. 

(i) The Conley Foil Co. — The Conley Foil Co. has a capital 
stock of $825,000 at par, all of one class, of which the American 
Tobacco Co. owns $495,000 at par, the balance being held by per- 
sons not defendants nor connected with defendants. It is engaged 
in the business of manufacturing tin foil, a product used largely 
by tobacco manufacturers, but having other uses as well. The 
Conley Foil Co. has a plant in New York City, and it owns all the 
stock and bonds of the Johnston Tin Foil & Metal Co., which has 
a plant in St. Louis. The value of the output for the year 1910 of 
the Conley Foil Co. was $1,780,526.85, with a net profit of $273,- 
299.82, and the Johnston Tin Foil & Metal Co. had an output for 
the year 1910 of the value of $676,520.05 and net profits of $66,255.- 
16. On December 31, 1910, the Conley Foil Co. had tangible 
assets (excluding its securities of the Johnston Tin Foil & Metal 
Co.) of $1,215,321, and the Johnston Tin Foil & Metal Co. had 
assets of the value of $379,802.11. The Conley Foil Co. has a 
surplus exceeding the value of the securities of the Johnston Tin 
Foil & Metal Co. 

It is proposed that the Conley Foil Co. cancel the bonds of the 
Johnston Tin Foil & Metal Co. held by it, to wit, $100,000 par 
value, and distribute to its stockholders its holdings of stock of the 
Johnston Tin Foil & Metal Co., to wit, 3,000 shares, all of one class. 

The American Tobacco Co., being a stockholder of the Conley 
Foil Co., will participate in this distribution, and will in turn dis- 
tribute its dividend, as well as its stock in the Conley Foil Co., to 
its common-stock holders as hereinafter set forth. 

(2) Mac Andrews b' Forbes Co. — Mac Andrews & Forbes Co. is a 
company having a common capital stock of $3,000,000 at par, of 
which the American Tobacco Co. owns $2,112,900 at par, the 
balance being held by persons not defendants nor connected with 
defendants (except less than 3^ per cent of the common stock 
held by R. J. Reynolds Tobacco Co.), and $3,758,300 at par of. 
6 per cent nonvoting preferred stock, of which the American 
Tobacco Co. holds $750,000 at par, the balance being held by 
persons not defendants nor connected with defendants. It is 



Methods of Dissolution 443 

engaged in the production of licorice paste, with two plants — one 
at Camden, N. J., and the other at Baltimore, Md. It had tangible 
assets, December 31, 1910, of the value of $5,683,824.89 (including 
$2,118,448.36 licorice root, with plants for its collection in foreign 
countries), and its sales for the year 1910 were of the value of 
$4,427,023.44. MacAndrews & Forbes Co. succeeded to the 
business of MacAndrews & Forbes, a partnership, who were pioneers 
in this country in the production of licorice paste, and who had, 
for many years before any acquisitions of other business and 
before they had any connection with the other defendants herein, 
more than 50 per cent of all the licorice-paste business of the 
United States. 

It is proposed that a new corporation be organized, called the 
J. S. Young Co., and that it shall acquire the Baltimore plant of 
MacAndrews & Forbes Co., with the assets used therein and in 
connection therewith, of a total value of $1,000,000, and the brands 
of licorice paste manufactured in said Baltimore plant; that it 
issue in payment therefor, with the good will connected therewith, 
$1,000,000 at par of 7 per cent preferred nonvoting stock and 
$1,000,000 at par of common stock; that MacAndrews & Forbes 
Co. distribute the common stock of the J. S. Young Co. as a divi- 
dend to its common-stock holders, charging the amount thereof to 
its surplus account; that MacAndrews & Forbes Co. offer to its 
preferred-stock holders proportionately to exchange the 7 per cent 
preferred stock of the J. S. Young Co. at par for their preferred 
stock of MacAndrews & Forbes Co.; that so far as the preferred 
stock of MacAndrews & Forbes Co. is thus exchanged, it be re- 
tired; that so far as this preferred stock of the J. S. Young Co. is 
not forthwith thus exchanged, MacAndrews & Forbes Co. be en- 
joined from using it to exercise, or otherwise exercising or attempt- 
ing to exercise, influence or control over the J. S. Young Co.; and 
with the further provision that on or before January i, 19 15, the 
whole of this preferred stock of the J. S. Young Co., not theretofore 
taken out of the treasury of MacAndrews & Forbes Co. by exchange 
as aforesaid, be disposed of by MacAndrews & Forbes Co, 

This would give to MacAndrews & Forbes Co. a licorice business, 
including Spanish licorice and powdered goods, of the net selling 
value, based upon the year 1910, of $2,514,184.64, of which $2,214,- 
127.51 arise from sales of one brand, to wit, the old "Ship" brand. 
The J. S. Young Co., upon the basis of the business for the year 
1910, would have an output of the net selling value of $1,201,109.86. 



444 Industrial Combinations and Trusts 

The American Tobacco Co., being a holder of the common stock 
of Mac Andrews & Forbes Co., will participate in the distribution 
above provided and will in turn distribute its dividend, as well as 
its stock in MacAndrews & Forbes Co., to its common-stock holders 
as hereinafter set forth. 

(3) American Snuff Co. — American Snuff Co. is a manufacturer 
of snuff. It holds all of the stock of De Voe Snuff Co., to mt, 
$50,000 at par; and one-half, to ^i.t, $26,000 at par, of the stock 
of National Snuff Co. It owns no other interest in any company 
m^anufacturing or selling snuff. 

It is proposed that there be organized two new snuff companies, 
one to be called the George W. Helme Co. and the other Weyman- 
Bruton Co., and that American Snuff Co. convey to these two 
companies, respectively, factories, ^dth the brands manufactured 
in them, as follows: To the George W. Helme Co. the factories 
at Helmetta, N. J., and Yorklyn, Del., except factory No. 5; to 
Wey man-Burton Co. the factories at Chicago and Nashville, also all 
the stock of De Voe Snuff Co., and the one-half of the stock of Na- 
tional Snuff Co. held by American Snuff Co. Based upon the busi- 
ness for the year 19 10 and the assets at the end of the year, with 
proper provision for leaf, materials, cash and book accounts for 
the two vendee companies, this would leave the three companies 
equipped as follows: 

Manufacturing tangible assets. 

American Snuff Co. 1 $5,075,969.72 

George W. Helme Co. 4,909,000.40 

Weyman-Bruton Co. 3,691,588.20 

Sales value during igio. 

American Snuff Co. $5,520,422.15 

George W. Helme Co. 4,494,556.66 

Weyman-Bruton Co. 4,297,486.71 

Net income. 

American Snuff Co. -^ $1,591,280.49 

George W. Helme Co. 1,259,280.98 

Weyman-Bruton Co. 1,293,759.39 

1 American Snuff Co. holds securities not connected with the snuff business, 
to wit: Stock and bonds of the American Tobacco Co., preferred stock of Amer- 
ican Cigar Co., aggregating in book value $2,530,216.69, upon which American 
Snuff Co. received in interest and dividends during the year 1910, $176,680. 



Methods of Dissolution 445 

Each of these vendee corporations will pay for the property and 
business conveyed to it by the issue of $4,000,000 at par of 7 per 
cent voting preferred stock and $4,000,000 at par of common stock. 
American Snuff Co. will thus receive the $16,000,000 at par of these 
stocks into its treasury, and will distribute to its common-stock 
holders, as a dividend, the common stock aggregating $8,000,000, 
to be charged to its surplus account. American Snuff Co. will offer 
to its preferred-stock holders proportionately to exchange these 
7 per cent preferred stocks of the George W. Helme Co. and the 
Weyman-Bruton Co. for their preferred stock of American Snuff 
Co. at par. So much of the preferred stock of American Snuff Co. 
as is thus exchanged will be retired. As to so much of the preferred 
stocks of the George W. Helme Co. and the Weyman-BrUton Co. 
as is not forthwith thus exchanged, American Snuff Co. to be en- 
joined from voting it, or using it to exercise, or otherwise exercising 
or attempting to exercise, influence, or control over the George 
W. Helme Co. or the Weyman-Bruton Co. ; and on or before Jan- 
uary I, 191 5, all of these preferred stocks of the George W. Helme 
Co. and the Weyman-Bruton Co. not theretofore taken out of the 
treasury of American Snuff Co. by exchange as aforesaid to be dis- 
posed of by American Snuff Co. 

The American Tobacco Co., being a holder of the common stock 
of American Snuff Co., will participate in the distribution above 
provided, and will, in turn, distribute its dividends as well as its 
stock in American Snuff Co., including that to be acquired from 
P. Lorillard Co., to its common-stock holders as hereinafter set 
forth. 

(4) American Stogie Co. — American Stogie Co. is a corporation 
whose only asset is all of the issued stock of Union- American Cigar 
Co., which latter company has cigar factories located at Pittsburgh, 
Allegheny, Lancaster, and Newark. Its total production, based 
upon business for the year 19 10, is only 1.58 per cent of the entire 
production of cigars in the United States in volume, and, as these 
petitioners believe, about the same percentage in value. American 
Stogie Co. has $976,000 at par of 7 per cent cumulative preferred 
stock, of which American Cigar Co. owns $40,000 at par, and none 

It is proposed that American Snuff Co. sell or otherwise dispose of these secur- 
ities within three years, and that in the meantime they be held under an injunc- 
tion as is provided in this paragraph with respect to securities of the George W. 
Helme Co. and Weyman-Bruton Co. to be temporarily held by it. It also owns 
all, to wit, $100,000 at par of the stock of Garrett Real Estate Co., which will 
be dissolved and liquidated. 



446 Industrial Combinations and Trusts 

of the other defendants own any; it has $10,879,000 at par of com- 
mon stock, of which American Cigar Co. owns $7,303,775 at par, 
and none of the other defendants own any. There are accumulated 
and unpaid dividends on the preferred stock to the amount of 
$399,000 as of December 31, 1910. 

It is proposed that American Stogie Co. dissolve, with leave 
granted to the trustees in dissolution to either convert the assets 
into cash, and distribute them among the stockholders according 
to their rights, or to effect such reorganization as they may be able 
to effect, provided that in either event there shall be a separation 
into at least two different ownerships of the factories and businesses 
now owned and operated by Union-American Cigar Co. If the 
dissolution is followed by a conversion of the assets of American 
Stogie Co. into cash, American Cigar Co. will take such cash as it 
may receive into its treasury; if it receives upon such dissolution 
securities of cigar-manufacturing concerns, it will distribute such 
as a dividend to its common-stock holders, to be charged to its sur- 
plus as hereinafter set forth. 

(5) American Cigar Co. — American Cigar Co. is a manufacturer 
of cigars. It has various factories of its ow^n, and it owns all or a 
part of the stock of several companies engaged in the manufacture 
of cigars, all of which companies have been organized by it and 
which have received from it conveyances of part of its business, 
operating in this way as separate corporations for trade purposes. 
Among these companies is Federal Cigar Co. 

American Cigar Co. also ow^ns a part of the stock of Havana 
Tobacco Co., which controls factories manufacturing cigars in 
Havana; and a part of the stock of Porto Rican- American Tobacco 
Co., engaged in the manufacture of cigars and cigarettes in Porto 
Rico; and half of the stock of Porto Rican Leaf Tobacco Co., en- 
gaged in growing tobacco in Porto Rico. American Cigar Co. it- 
self uses large quantities of Porto-Rican grown leaf. Neither 
American Cigar Co. nor any of the companies in which it is inter- 
ested, except Havana Tobacco Co. and Porto Rican-American 
Tobacco Co., is engaged in the manufacture of cigars outside of 
the United States. 

American Cigar Co., including with its production the production 
of companies of which it owns in whole or in part the stock, has, in 
volume, based on the business for the year 1910, 13.36 per cent of 
the cigar business of the United States, and in value, as your peti- 
tioners believe, substantially the same percentage. Havana To- 



Methods of Dissolution 447 

bacco Co. has, directly or indirectly, control of 24.06 per cent of the 
total production of cigars in Cuba, 46 per cent of the total exporta- 
tion of cigars from Cuba to all countries of the world, including the 
United States, and 38.15 per cent of the total exportation of cigars 
from Cuba to the United States. 

It is proposed that American Cigar Co. dispose of properties 
belonging to it, and thus disintegrate its business, as follows: 

(a) That it sell to the American Tobacco Co. for cash its stock, 
being all thereof, of Federal Cigar Co., at a fair price, to wit., 
$3,965,616.05. 

(b) That it sell to the American Tobacco Co. for cash the stock 
it owns of Porto Rican-American Tobacco Co., to wit., $657,600 
at. par, at a fair price, to wit., $350 per share, or $2,301,600. 

(c) That American Cigar Co. dispose of any interest in American 
Stogie Co. by receiving cash proceeds of its stock in dissolution 
thereof, if American Stogie Co. upon dissolution converts its assets 
into cash; or by distributing as a dividend to its common-stock 
holders out of its surplus the securities which it receives upon the 
dissolution of American Stogie Co., if it receives such. 

All stocks thus to be acquired by the American Tobacco Co. from 
American Cigar Co. are to be disposed of by the American Tobacco 
Co. as hereinafter set out. 

E. 

DISTRIBUTION BY THE AMERICAN TOBACCO CO. OF STOCKS OWNED OR 
TO BE ACQUIRED BY IT. 

(i) Immediate distribution of stocks. — The American Tobacco 
Co. will buy from P. Lorillard Co., for cash at par, the 11,247 shares 
of the preferred stock of American Snuff Co. held by P. Lorillard 
Co., and will receive, as the sole common-stock holder of P. Loril- 
lard Co. and by way of dividends, 34,594 shares of the common 
stock of American Snuff Co. held by P. Lorillard Co. 

The American Tobacco Co. will distribute among its common- 
stock holders by way of dividends, and to be charged to its surplus, 
all of its securities of the following-described classes, whether now 
owned by it or bought by it from American Cigar Co., as hereinbe- 
fore set forth, or bought by it from P. Lorillard Co., as just hereinbe- 
fore set forth, or received by it by way of dividends from any of the 
accessory companies defendant, as hereinbefore set forth, to wit:, 
American Snuff Co. common stock; American Snuff Co. preferred 
stock; George W. Helme Co. common stock; Weyman-Bruton Co. 



448 Industrial Combinations and Trusts 

common stock; MacAndrews & Forbes Co. common stock; J. S. 
Young Co. common stock; the Conley Foil Co. stock; the Johnston 
Tin Foil & Metal Co. stock; R. J. Reynolds Tobacco Co. stock; 
Corporation of United Cigar Stores stock; British- American To- 
bacco Co. (Ltd.), ordinary shares; Porto Rican- American Tobacco 
Co. stock; American Stogie Co. stock (or v/hat is received by way 
of dividends from American Cigar Co. upon dissolution of American 
Stogie Co.). 

Including the amount to be paid to American Cigar Co. and P. 
Lorillard Co. for such of these securities as are to be acquired by the 
American Tobacco Co. from them, respectively, and excluding 
those to be acquired by way of dividends, and which therefore do 
not affect the surplus of the American Tobacco Co., never having 
been set up on its books, these securities had a book value as of 
December 31, 1910, of $35,011,865.03. The earning capacity of all 
the above securities thus to be distributed, based upon the results 
of the year 1910, is $9,860,410.76, though not all thereof was dis- 
tributed as dividends. 

(2) Deferred disposition of stocks. — The American Tobacco Co. 
will sell or otherwise dispose of, or distribute by way of dividends 
to its common-stock holders out of its surplus at the time existing, 
before January i, 191 5, all of its holdings of the following securities: 
British- American Tobacco Co. (Ltd.) nonvoting preference shares; 
the Imperial Tobacco Co. (of Great Britain and Ireland (Ltd.) 
ordinary shares; Corporation of United Cigar Stores bonds; Mac- 
Andrews & Forbes Co. nonvoting preferred stock. 

During the time these securities are left in the treasury of the 
American Tobacco Co. the American Tobacco Co. to be enjoined 
from voting any thereof that under the terms thereof might be 
voted, or using any thereof to exercise, or otherwise exercising or 
attempting to exercise, influence or control over the said companies 
which issued the said securities, respectively, and from gaining 
possession of any of the said companies by buying in at a foreclo- 
sure had under any of the securities for any default with respect 
thereto or otherwise. 

F. 

sale by the AMERICAN TOBACCO CO. OF MANUFACTURING ASSETS 
AND BUSINESS TO COMPANIES TO BE FORMED. 

(i) There will be organized a new corporation called Liggett & 
Myers Tobacco Co. and a new corporation called P. Lorillard Co., 



Methods of Dissolution 449 

and the American Tobacco Co. will sell, assign, and convey to 
these two companies factories, plants, brands, and businesses and 
capital stocks of tobacco-manufacturing corporations, as follows: 

TO LIGGETT & MYERS TOBACCO CO. 

Liggett & Myers branch of the American Tobacco Co., engaged in 
the manufacture of plug tobacco at St. Louis, with the brands con- 
nected therewith. 

Spaulding & Merrick, a company of which the American Tobacco 
Co. owns and has always owned all the stock, engaged in Chicago in 
the manufacture of fine-cut tobacco and smoking tobacco. 

Allen & Ginter branch of the American Tobacco Co., engaged in 
the manufacture of cigarettes, at Richmond, Va., and the brands 
connected therewith (this does not include the brand "Sweet Cap- 
oral," made partly there and partly at New York). 

Chicago branch of the American Tobacco Co., a factory at Chicago 
engaged in the manufacture of smoking tobacco, with the brands con- 
nected therewith. 

Catlin branch of the American Tobacco Co., a factory at St. Louis 
engaged in the manufacture of smoking tobacco, with the brands con- 
nected therewith. 

Nail & Williams Tobacco Co., a company of which the American 
Tobacco Co. owns all the stock, engaged in the manufacture of plug 
and smoking tobacco at Louisville, Ky. 

The John BoUman Co., a company engaged in the manufacture of 
cigarettes at San Francisco; of this corporation the American Tobacco 
Co. owns 90 per cent of the stock, which it is proposed to turn over 
to the Liggett & Myers Tobacco Co. 

Pinkerton Tobacco Co., a corporation engaged in the manufacture 
of scrap tobacco (a kind of smoking tobacco) at Toledo, Ohio; of 
this corporation the American Tobacco Co. owns 77 J per cent of 
the stock, which it is proposed to turn over to the Liggett & Myers 
Tobacco Co. 

W. R. Irby branch of the American Tobacco Co., at New Orleans, 
engaged in the manufacture of cigarettes and smoking tobacco, the 
principal brands being "Home Run" and "King Bee." 

The Duke-Durham branch of the American Tobacco Co., engaged 
in the manufacture of cigarettes and smoking tobacco at Durham, 
N. C; principal cigarette brands, "Piedmont" and "American 
Beauty"; principal smoking tobacco brand, "Duke's Mixture." 



450 Industrial Combinations and Trusts 

Two little cigar factories located, the one at Philadelphia and the 
other at Baltimore, branches of the American Tobacco Co.; principal 
brand, "Recruits." 

TO P. LORILLARD CO. 

All the rights of the American Tobacco Co. in the present P. 
Lorillard Co., to wit: All the common stock and $1,596,100 at par 
out of a total issue of $2,000,000 of 8 per cent preferred stock; it is 
contemplated that as a part of these reorganizations the Lorillard 
Co., as at present constituted, be wound up and the new company 
be organized, taking over assets of the P. Lorillard Co. 

S. Anargyros, a company enagged^ in the manufacture of ciga- 
rettes, in which the American Tobacco Co. owns all the stock, and of 
which it has always owTied all the stock. 

Luhrman & Wilbem Tobacco Co., a company engaged in the 
manufacture of scrap tobacco (a kind of smoking tobacco), of which 
the American Tobacco Co. owns and has for many years owned, all 
the stock. 

Philadelphia branch B, at Philadelphia, Wilmington branch B, at 
Wilmington, Penn Street branch at Brooklyn, Danville branch B, at 
Danville, and EUis branch B, at Baltimore, branches of the American 
Tobacco Co., manufacturing little cigars, the principal brand being 
"Between the Acts." 

Federal Cigar Co., a company all of whose stock is, and has always 
been, owned by American Cigar Co., but which, as hereinbefore pro- 
vided, is to be purchased for cash by the American Tobacco Co. 

Each of these conveyances to include proper and adequate storage 
houses, leaf tobacco, and other materials and supplies, provision for 
book accounts, including in each case a ratable proportion of the cash 
held by the American Tobacco Co. on December 31, 1910, so that 
each of the new corporations will be fully equipped for the conduct 
of the business of manufacturing and dealing in tobacco. 

(2) Resources mid capitalization of companies and provisions for 
exchanging and retiring securities of American Tobacco Co. — The 
American Tobacco Co. has securities issued and outstanding as 
follows: 

6 per cent bonds $52,882,650 

4 per cent bonds (including outstanding 4 per cent 

bonds of Consolodated ^ Tobacco Co.) - - - - 51,354,100 

1 Thus in original. — Ed. 



Methods of Dissolution 451 

6 per cent preferred stock - - " - - - - "- ~ _" -~" 78,689,100 
Common stock -- --_.. 40,242,400 

The American Tobacco Co. in October, 1904, immediately after 
the merger, had an outstanding issue of its own 4 per cent bonds and 
the Consolidated Tobacco Co. 4 per cent bonds which it assumed, 
amounting to $78,689,100, but it has purchased on the market and 
retired $27,335,000 at par of these 4 per cent bonds, charging the 
amount thus expended to surplus. The 6 per cent bonds and 4 per 
cent bonds aforesaid are what are ordinarily known as debenture 
bonds, and are issued under a trust indenture which imposes a gen- 
eral charge on the property, income, and earnings of the company in 
favor, first, of the 6 per cent bonds, and, second, of the 4 per cent 
bonds. The American Tobacco Co. , after the reduction of the surplus 
through the acquisition by it of 4 per cent bonds as aforesaid, had 
on December 31, 1910, a surplus of $61,119,991.63, which will be 
increased by the surplus earnings of the current year. The distribu- 
tion of securities herein provided for to be forthwith made, would 
diminish the said surplus by $35,011,865.03, the book value of 
securities to be so distributed. This book value is less than actual 
value, but in view of the fact that none of the assets of the American 
Tobacco Co. are overvalued, the advance of the book value of the 
securities to be distributed as hereinbefore set forth to their actual 
value, would operate at the same time to increase the surplus of the 
company, and so its surplus, after such distribution, would remain 
just the same as though the advance to actual value had not been 
made on the books of the company. 

The properties to be conveyed to the Liggett & Myers Tobacco Co. 
and P. Lorillard Co., based upon conditions as of December 31, 1910, 
the last completed year, including in such conveyances the proper 
and proportionate storage houses, leaf tobacco, supplies and mate- 
rials, and cash, but without anything for value of brands, trademarks, 
formulae, recipes, and good will, but including stocks of com- 
panies, are of the value of $30,607,261.96 to Liggett & Myers To- 
bacco Co. and $28,091,748.86 to P. Lorillard Co. So far as these 
conditions shall be changed before the day of the conveyance, any 
deficiency is to be made good in cash, so that these two companies 
will have said amounts in tangible assets as aforesaid, useful, and 
such as have been used, in the manufacture of the brands to be con- 
veyed to them, respectively, and cash. The American Tobacco Co. 
will be left with tangible assets, including stocks of companies em- 



452 Industrial Combinations and Trusts 

ployed in manufacturing tobacco and its products, cash and bills and 
accounts receivable of the value of $53,408,498.94 as of December 31, 
1910. The profits earned during the year 1910 on the brands and 
businesses to be conveyed by the American Tobacco Co. to Liggett 
& Myers Tobacco Co. amounted to $7,468,172.02, and the profits on 
the brands and businesses to be conveyed by the American Tobacco 
Co. to P. Lorillard Co. amounted to $5,264,729.38. 

It is proposed that the value of the brands, trade-marks, recipes, 
formulae, and good will to be sold to each of these companies be de- 
termined by their earning capacity, based upon the results for the 
year 19 10, so that each shall have an earning capacity of 11.02 per 
cent per annum upon its total property, including both tangible 
property and brand value and good will. Upon this basis the con- 
sideration to be paid by the Liggett & Myers Tobacco Co. will be 
$30,607,261.96, value of tangible assets as above stated, and $36,840,- 
237.04, value of brands, trade-marks, recipes, formulae, and good will, 
making a total of $67,447,499; and the consideration to be paid by 
the P. Lorillard Co. will be $28,091,748.86, value of tangible assets as 
above stated, and $19,460,752.14, value of brands, trade-marks, re- 
cipes, formulae, and good will, making a total of $47,552,501. The 
brands, trade-marks, recipes, formulae, and good will of the American 
Tobacco Co. on December 31, 1910, were of the book value of 
$101,324,964.07. The payments for brand value, etc., to the Amer- 
ican Tobacco Co. to be made by Liggett & Myers Tobacco Co. and 
P. Lorillard Co., as aforesaid, makes an aggregate of $56,300,989.18, 
and would thus leave the book value of brands, trade-marks, recipes, 
formulae, and good will retained by the American Tobacco Co. at 
$45,023,974.89, which added to the $53,408,498.94 of tangible man- 
ufacturing assets to be retained by the American Tobacco Co., will 
make the total book value of manufacturing property to be retained 
by that company $98,432,473.83, upon which its earnings, based upon 
the results for the year 1910, would be $11,369,809.82, or 11.55 
per cent. 

The Liggett & Myers Tobacco Co. and the P. Lorillard Co. would 
pay for these conveyances, therefore, the aggregate as aforesaid, to 
wit: 

Liggett & Myers Tobacco Co. $67,447,499 

P. Lorillard Co. 47,552,501 

Aggregating - - 115,000,000 



Methods of Dissolution 



453 



or each with its earnings on the business for the year 1910 so capital- 
ized that said earnings represent 11.02 per cent upon the capital. 

Liggett & Myers Tobacco Co. and P. Lorillard Co. will issue se- 
curities to cover such capitalization in the aggregate as follows: To an 
amount equal to one-half of the outstanding 6 per cent bonds of the 
American Tobacco Co., that is, $26,441,325 at par in 7 per cent bonds; 
to an amount equal to one-half of the outstanding 4 per cent bonds 
of the American Tobacco Co., that is, $25,677,050 at par in 5 per 
cent bonds; to an amount equal to one- third of the outstanding pre- 
ferred stock of the American Tobacco Co., that is, $26,229,700 at 
par in 7 per cent cumulative voting preferred stock, which, upon 
liquidation of the company, shall be paid at par with accrued unpaid 
dividends before any amount shall be paid to common stock, with 
balance of assets distributable ratably to the common stock, and the 
balance of said $115,000,000, that is, $36,651,925 in common stock. 
The 7 per cent bonds and the 5 per cent bonds to mature at the time 
fixed, respectively, for the maturity of the 6 per cent bonds and 
the 4 per cent bonds of the American Tobacco Co. now outstanding 
and to be issued under an indenture of substantially like tenor and 
terms with the present indenture of the American Tobacco Co. under 
which its 6 per cent bonds and 4 per cent bonds were issued. The 
7 per cent bonds to have priority in charge over the 5 per cent bonds 
in the same way that the 6 per cent bonds of the American Tobacco 
Co. have priority of charge over the 4 per cent bonds Thus the 
capitalization of the Ligget & Myers Tobacco Co. and P. Lorillard 
Co. will be as follows 



Liggett & 
Myers. 



Lorillard. 



Total. 



7 per cent bonds 

5 per cent bonds 

7 per cent preferred stock . 
Common stock 



115,507,837 
15,059,589 
15,383,719 
21,496,354 



$10,933,488 
10,617,461 
10,845,981 
15,155,571 



Total 67,447,499 



47,552,501 



$26,441,325 
25,677,050 
26,229,700 
36,651,925 

115,000,000 



All of these securities of the Liggett & Myers Tobacco Co. and the 
P. Lorillard Co. to be turned over to the American Tobacco Co. in 
payment of the purchase price for the factories, plants, brands, and 
businesses and capital stocks of tobacco manufacturing corporations 
so to be conveyed to Liggett & Myers Tobacco Co. and P. Lorillard 
Co., respectively, as hereinbefore set out. 



454 Industrial Combinations and Trusts 

These securities will be disposed of by the American Tobacco Co. 
as follows: 

The common stock will be offered for cash at par to the holders of 
the common stock of the American Tobacco Co. in proportion to their 
holdings, and any not purchased by the person thus entitled thereto 
shall be sold to persons other than the individual defendants, to the 
end that such offer of common stock of the two new companies to the 
common-stock holders of the American Tobacco Co. shall not be 
used by the individual defendants to increase their ownership therein 
beyond the proportion of their holdings of the conamon stock of the 
American Tobacco Co. 

To each holder of the 6 per cent bonds of the American Tobacco Co. 
an offer shall be made to acquire his bonds for cancellation and to give 
in exchange therefor, as to one-half thereof, new 7 per cent bonds of 
Liggett & Myers Tobacco Co. and P. Lorillard Co. at par, and in 
payment for the other half thereof cash at the rate of $120 and ac- 
crued interest for each $100 face value of the bonds. 

To each holder of the 4 per cent bonds of the American Tobacco 
Co. an offer shall be made to acquire his bonds for cancellation, and 
to give in exchange therefor, as to one-half thereof, new 5 per cent 
bonds of Liggett & Myers Tobacco Co. and P. Lorillard Co. at par, 
and in payment for the other half thereof cash at the rate of $96 and 
accrued interest for each $100 face value of the bonds. 

To each holder of the preferred stock of the American Tobacco Co. 
an offer shall be made to acquire one-third of his stock for cancella- 
tion in exchange for an equal amount at par of Liggett & Myers 
Tobacco Co. and P. Lorillard Co. 

On accoimt of the larger capitalization of the Liggett & Myers To- 
bacco Co., as compared with the P. Lorillard Co., each class of the 
new securities will issue in the proportion of 58.65 per cent thereof 
of Liggett & Myers Tobacco Co. securities and 41.35 per cent thereof 
of P. Lorillard Co. securities. The stocks will be issued in shares of 
$100, and coupon bonds in denominations of $1,000, and registered 
bonds in larger denominations, and in denominations of $100 and 
$50, and in actual issue fractions will be eliminated. 

The common stocks of the two companies aforesaid are to be sold 
as above set out prior to March i, 191 2, mth three years to be al- 
lowed for the retirement of the bonds and preferred stock of the 
American Tobacco Co., as above set out. Pending such, the said 7 
per cent bonds, 5 per cent bonds, and 7 per cent preferred stocks of 
the Liggett & Myers Tobacco Co. and the P. Lorillard Co., together 



Methods of Dissolution 455 

with an amount in cash, or in securities owned by the American To- 
bacco Co., at their book value, or partly in cash and partly in such 
securities, equal to the amounts required if all such sales and ex- 
changes are made, will be deposited with the Guaranty Trust Co. of 
New York, the trustee in the indenture under which the 6 per cent 
bonds and the 4 per cent bonds of the American Tobacco Co. are 
issued, as the agency to effect the purchase and exchange. Such 
deposit will be made, not to secure nor create a trust fund for the 
bonds, but for the purpose of sequestrating and taking from the con- 
trol of the American Tobacco Co. the securities and cash so deposited. 
During the time of such deposit the securities shall be in the name of, 
as well as in the custody of, said trust company, with any voting 
rights attaching thereto, but the American Tobacco Co. shall receive 
from the trust company all dividends and interest collected by it on 
account of such securities; and the American Tobacco Co. shall have 
the right at any time and from time to time to sell, at such price as 
it may determine, and direct the delivery of any of such securities 
(except the securities of Liggett & Myers Tobacco Co. and P. Loril- 
lard Co.), the consideration therefor to go into the hands of said 
trust company; or to withdraw any of such securities (except the 
securities of Liggett & Myers Tobacco Co. and P. Lorillard Co.) for 
the purpose of distribution among its common-stock holders, if its 
surplus at the time permits; or to substitute other securities of like 
book value for the securities so deposited (except as to the securities 
of Liggett & Myers Tobacco Co. and P. Lorillard Co.) ; or to alter the 
relative proportion of cash and securities, it being the intent of this 
provision that there shall be sequestrated from the control of the 
American Tobacco Co. all the securities of the Liggett & Myers To- 
bacco Co. and P. Lorillard Co., and an additional amount of cash or 
other securities equal, upon the purchase basis aforesaid, to the value 
of the 4 per cent bonds and the 6 per cent bonds of the American To- 
bacco Co. at the time outstanding. At the end of the three years, if 
there are any of such securities of the Liggett & Myers Tobacco Co. or 
P. Lorillard Co. in the hands of such trust company undisposed of 
by such exchange as aforesaid, then the American Tobacco Co. shall 
apply to this court for an order as to the disposition thereof. Noth- 
ing contained in this provision, and nothing done under this provision, 
shall be construed as providing for the creation of, or as creating, 
any lien or security on anything deposited with the trust company 
in favor of the 6 per cent bonds or the 4 per cent bonds of the i^er- 
ican Tobacco Co., outstanding or otherwise. 



456 INDUSTRLA.L Com:binations and 1 rusts 

G. 

VOTING RIGHTS TO PREPERRED STOCK. 

By proper amendment of the certificate of incorporation of the 
American Tobacco Co. the preferred stock will be given full voting 
rights. 

H. 

CERT.-UN IXCIDEXTAL PRO\TSIONS. 

(i) P. Lorillard Co. is a New Jersey company ^ith $3,000,000 of 
common stock, all of which is ov^med by the American Tobacco Co., 
and $2,000,000 of 8 per cent preferred stock. Of this preferred stock 
the American Tobacco Co. holds 81,596,100 at par and there is held 
by others $403,900 at par. Under the laws of New Jersey the present 
P. Lorillard Co. may be dissolved by the holders of two-thirds of the 
outstanding stock, and upon such dissolution the preferred stock is 
entitled to be paid at par, the balance of the assets going to the com- 
mon stock. In \-iew of the fact, however, that the preferred stock of 
the present P. Lorillard Co. is an 8 per cent preferred stock with 
abundant assets and earnings to make the principal and income 
secure, it is deemed fair to the holders of this outstanding $403,900 of 
preferred stock that they be given an opportunity to take, at their 
option, either cash at par, which they are legally entitled to, or the 
7 per cent preferred stock of the proposed new P. Lorillard Co. As 
the preferred stock of the new P. Lorillard Co. is to be a 7 per cent 
preferred stock, the holders of said $403,900 of said present preferred 
stock ynl\ be ottered stock of the new company at the rate of $114.25 
for each share. It is therefore proposed that the new P. LoriUard 
Co. pro\nde for an additional amount of preferred stock sufficient to 
take care of $403,900 preferred stock on that basis, to vdt, $114.25 in 
new 7 per cent preferred stock for each $100 of said stock, amounting 
to $461,600 at par of preferred stock in addition to that set out here- 
inbefore. In \'iew of the fact that in the statements hereinbefore 
made as to earnings of the P. Lorillard Co. there is included only such 
part of the eammgs of the present P. Lorillard Co. as accrued to the 
proportion of its stock held by the American Tobacco Co., this in- 
crease of preferred stock would increase proportionately the profits of 
the P. Lorillard Co., and does not derange any of the figures herein- 
before given or given in any of the exhibits hereto and hereinafter 
referred to. 



Methods of Dissolution 457 

(2) American Snuff Co. manufactures and sells a brand of snuff 
called "Garrett," which has a large sale in the southern and south- 
western sections of the country. Originally this brand was manu- 
factured at Yorklyn, Del., and in part packed in Philadelphia. 
Several years ago American Snuff Co. determined, on account of 
freight-rate conditions, to manufacture this brand at Clarksville, 
Tenn., and to pack it at Memphis, Tenn., and that the factories 
at Yorklyn, Del., should be given up to the manufacture of other 
brands. It has yet, though, been unable to produce in Clarksville, 
Tenn., goods similar to the goods heretofore and now made by it at 
Yorklyn, Del., although the experiment is still in progress, and with 
hope of success. Under the plan hereinbefore outlined the brand 
" Garrett" snuff is allotted to American Snuff Co., and the factories 
other than one factory at Yorklyn, Del., are allotted to George W. 
Helme Co. ; your petitioners pray that in the approval and adoption 
by this court of this plan, American Snuff Co. and George W. 
Helme Co. be permitted to manufacture brands the one for the 
other for a period not exceeding one year from March i, 191 2, 
each company paying to the other as consideration for such manu- 
facture the cost thereof plus 5 per cent; the necessity of paying 5 
per cent above cost is sufficient inducement to each company to 
manufacture its own goods as soon as American Snuff Co. is able to 
manufacture '^ Garrett" snuff of the requisite character and kind 
in its Clarksville factory, thus leaving the Yorklyn factories, other 
than No. 5, for the manufacture by the George W. Helme Co. of 
its own brands. 

This court having heard the parties as directed by the Supreme 
Court of the United States, it is further ascertained and determined, 
and ordered, adjudged, and decreed that said plan hereinbefore 
set forth is a plan or method which, taken with the injunctive pro- 
visions hereinafter set forth, will dissolve the combination heretofore 
adjudged to be illegal in this cause, and will re-create out of the 
elements now composing it a new condition which will be honestly 
in harmony with, and not repugnant to, the law, and without un- 
necessary injury to the pubUc or the rights of private property. 

It is further ordered, adjudged, and decreed that the said plan as 
hereinabove set forth be, and it is hereby, approved by this court, 
and the defendants herein are, respectively, directed to proceed 
forthwith to carry the same into effect. 

The necessities of the situation, in the judgment of this court, 
requiring the extension of the period for carrying into execution 



458 Industrial Combinations and Trusts 

said plan to a further time not to exceed 60 days from Decem- 
ber 30, 1911. 

It is further ordered, adjudged, and decreed that the defendants 
be allowed until February 28, 1912, to carry said plan into execu- 
tion. 

It is further ordered, adjudged, and decreed that the defendants, 
their officers, directors, servants, agents, and employees be, and 
they are hereby, severally enjoined and restrained as follows: 

From continuing or carrying into further effect the combination 
adjudged illegal in this cause, and from entering into or forming 
any Kke combination or conspiracy, the effect of which is or will be 
to restrain commerce in tobacco or its products or in articles used 
in connection with the manufacture and trade in tobacco and its 
products among the States or in the Territories or with foreign na- 
tions, or to prolong the unlawful monopoly cf such commerce ob- 
tained and possessed by the defendants as adjudged herein in viola- 
tion of the act of Congress approved July 2, 1890, either: 

1. By causing the conveyance of the factories, plants, brands, or 
business of any of the 14 corporations among which the properties 
and businesses now in the combination are to be distributed, to 
wit, The American Tobacco Co., Liggett & Myers Tobacco Co., P. 
Lorillard Co., American Snuff Co., George W. Helme Co., Weyman- 
Bruton Co., R. J. Reynolds Tobacco Co., British- American To- 
bacco Co. (Ltd.), Porto Rican- American Tobacco Co., MacAn- 
drews & Forbes Co., J. S. Young Co., The Conley Foil Co., The 
Johnston Tin Foil & Metal Co., and United Cigar Stores Co., to 
any other of said corporations, by placing the stocks of any one or 
more of said corporations in the hands of voting trustees or control- 
ling the voting power of such stocks by any similar device; or 

2. By making any express or impHed agreement or arrangement 
together or one with another like those adjudged illegal in this 
cause relative to the control or management of any of said 14 cor- 
porations, or the price or terms of purchase or of sale of tobacco 
or any of its products or the supplies or other products dealt mth in 
connection with the tobacco business, or relative to the purchase, 
sale, transportation, or manufacture of tobacco or its products or 
supplies or other products dealt with as aforesaid by any of the par- 
ties hereto which will have a like effect in restraint of commerce 
among the States, in the Territories, and with foreign nations to 
that of the combination, the operation of which is enjoined in this 
cause, or by making any agreement or arrangement of any kind 



Methods of Dissolution 459 

with any other of such corporations under which trade or business 
is apportioned between such corporations in respect either to cus- 
tomers or locaHties. 

3. By any of said 14 corporations retaining or emplo3dng the 
same clerical organization, or keeping the same oflSce or ofl&ces, as 
any other of said corporations. 

4. By any of said 14 corporations retaining or holding capital 
stock in any other corporation any part of whose stock is also 
retained and held by any other of said corporations: Provided, how- 
ever, That this prohibition shall not apply to the holding by the 
Porto Rican-American Tobacco Co. and American Cigar Co. of 
stock in Porto Rican Leaf Tobacco Co., nor shall it apply to the 
holding of stock of the National Snuff Co. (Ltd.), by Weyman- 
Bruton Co. and British- American Tobacco Co. (Ltd.). 

5. By any of said 14 corporations doing business directly or in- 
directly under any other than its own corporate name or the name 
of a subsidiary corporation controlled by it: Provided, however, 
That in case of a subsidiary corporation the controlling corporation 
shall cause the products of such subsidiary corporation which are 
sold in the United States and bear the name of the manufacturer, 
to bear also a statement indicating the fact of such control. 

6. By any of said 14 corporations refusing to sell to any jobber 
any brand of any tobacco product manufactured by it except upon 
condition that such jobber shall purchase from the vendor some 
other brand or product also manufactured and sold by it: Provided, 
however, That this prohibition shall not be construed to apply to 
what are known as "combination orders" under which some brand 
or product may be offered to a jobber or dealer at a reduced price 
on condition that he purchase a given quantity of some other brand 
or product. 

It is further ordered, adjudged, and decreed that during a period 
of five years from the date hereof, each of said 14 corporations 
hereinbefore named, its oflScers, directors, agents, servants, and 
employees, are hereby enjoined and restrained, as follows: 

1. None of the said 14 corporations shall have any officer or 
director who is also an ofl&cer or director in any other of said corpora- 
tions. 

2. None of said 14 corporations shall retain or employ the same 
agent or agents for the purchase in the United States of tobacco 
leaf or other raw material, or for the sale in the United States of 
tobacco or other products, as that of any other of said corporations. 



460 Industrial Combinations and Trusts 

3. None of said 14 corporations shall directly or indirectly ac- 
quire any stock in any other of said corporations, or purchase or 
acquire any of the factories, plants, brands, or business of any other 
of said corporations, or make loans or otherwise extend financial 
aid to any other of said corporations. 

The provisions of this decree shall apply only to trade and com- 
merce in or between the several States and Territories and the 
District of Columbia, and trade and commerce between the United 
States and foreign nations. 

It is further ordered, adjudged, and decreed that British- 
American Tobacco Co. (Ltd.) and the Imperial Tobacco Co. (of 
Great Britain and Ireland, Ltd.) shall not act as agent for each 
other, nor employ a common agent, for the purchase of leaf tobacco 
in the United States, and neither of said two companies shall unite 
with any of the said 14 corporations among which the properties 
and businesses now in the combination are to be distributed, in the 
employment of a common agent for the purchase of tobacco leaf 
in the United States. 

It is further ordered, adjudged, and decreed that each of the 29 
individual defendants in this suit be enjoined and restrained from 
at any time within three years from the date of this decree, acquir- 
ing, owning, or holding, directly or indirectly, any stock, or any 
legal or equitable interest in any stock in any one of said 14 corpora- 
tions, except British- American Tobacco Co. (Ltd.), in excess of the 
amount to which he will be entitled under the provisions of the 
plan when the same shall have been carried out as proposed as the 
present owner of the amount of stocks in said several companies 
shown by the affidavits of said several defendants filed herein on the 
i6th day of November, 191 1: Provided, however, That any of said 
defendants may, notwithstanding this prohibition, acquire from 
any other or others of said defendants, or in case of death from 
their estates, any of the stock held by such other defendant or 
defendants in any of said corporations. 

It is further ordered, adjudged, and decreed that the new com- 
panies whose organization is provided for in the plan hereinabove 
set forth, to mt: Liggett & Myers Tobacco Co., P. Lorillard Co., 
George W. Helme Co., Weyman-Bruton Co., and J. S. Young Co., 
shall, after their formation and by appropriate proceeding, be made 
parties defendant to this cause and subject to the provisions of 
this decree and bound by the injunctions herein granted. 

It is further ordered, adjudged, and decreed that any party hereto 



Methods of Dissolution 461 

may make application to the court for such orders and directions 
as may be necessary or proper in relation to the carrying out of 
said plan, and the provisions of this decree. 

It is further ordered, adjudged, and decreed that the costs of this 
action shall be paid by the defendants other than R. P. Richardson, 
jr., & Co. (Inc.), as to whom the suit has heretofore been dismissed, 
and the payment by the defendant, the American Tobacco Co., of 
the reasonable costs and counsel fees of the committees organized 
for the protection of the 6 per cent bonds, 4 per cent bonds and pre- 
ferred stock of the American Tobacco Co. is hereby approved. 

It is further ordered, adjudged, and decreed that the defendants, 
the American Tobacco Co., MacAndrews & Forbes Co., American 
Snujff Co., and each of them and their and each of their officers, 
directors, servants, agents, and employees, be severally enjoined 
and restrained, as in said plan set forth, from voting stocks, exer- 
cising influence or control over other companies or gaining posses- 
sion of other companies through the use of securities temporarily 
held by them, respectively, under said plan in each and every case 
in which it is provided in and by the said plan that any of said 
three last-named defendants shall be so enjoined. 

It is further ordered, adjudged, and decreed that such books and 
papers of the defendants, the American Tobacco Co. and S. Anargy- 
ros, or either of them, as relate to the suit of the Ludington Ciga- 
rette Machine Co. v. S. Anargyros and the American Tobacco Co., 
or the subject matter thereof or any part thereof, be preserved by 
the said defendants, respectively, until after the accounting, if any 
shall take place in said suit, and said suit be finally determined and 
ended. 

It is further ordered, adjudged, and decreed that jurisdiction of 
this cause is retained by this court for the purpose of making such 
other and further orders and decrees, if any, as may become neces- 
sary for carrying out the mandate of the Supreme Court. 

November 16, 191 1. 

E. Henry Lacombe, 

Circuit Judge. 
Alfred C. Coxe, 

Circuit Judge. 
H. G. Ward, 

Circuit Judge. 
Walter C. Noyes, 

Circuit Judge. 



462 Industrial Combinations and Trusts 

Exhibit 2 
the dissolution of the standard oil company ^ 

standard oil company (of new jersey). 

26 broadway, 

New York, July 28, 191 1. 
To the Stockholders of the 

Standard Oil Company (of New Jersey) : 

Obedience to the final Decree in the case of the United States 
against the Standard Oil Company (of New Jersey), and others, 
requires this Company to distribute, or cause to he distributed, ratably, 
to its stockholders the shares of stock of the following corporations, 
which it owns directly or through its ownership of stock of the National 
Transit Company,'^ to wit: Anglo-American Oil Company, Limited; 
The Atlantic Refining Company; Borne-Scrymser Company; 
The Buckeye Pipe Line Company; Chesebrough Manufacturing 
Company, Consolidated; Colonial Oil Company; Continental Oil 
Company; The Crescent Pipe Line Company; Cumberland Pipe 
Line Company, Incorporated; The Eureka Pipe Line Company; 
Galena-Signal Oil Company; Indiana Pipe Line Company; National 
Transit Company; New York Transit Company; Northern Pipe 
Line Company; The Ohio Oil Company; The Prairie Oil and Gas 
Company; The Solar Refining Company; Southern Pipe Line Com- 
pany; South Penn Oil Company; South West Pennsylvania Pipe 
Lines; Standard Oil Company (California); Standard Oil Company 
(Indiana); The Standard Oil Company (Kansas); Standard Oil 
Company (Kentucky) ; Standard Oil Company (Nebraska) ; Stan- 
dard Oil Company of New York; The Standard Oil Company 
(Ohio); Swan & Finch Company; Union Tank Line Company; 
Vacuum Oil Company; Washington Oil Company; Waters-Pierce 
Oil Company. 

Such distribution will be made to the stockholders of the Standard 
Oil Company (of New Jersey) of record on the ist day of September, 
191 1 ; and, for that purpose, the transfer books of the Company will 
be closed on the 31st day of August, 191 1, at 3 o'clock P. M., and 

^ Letter of the Standard Oil Company to its stockholders. The Standard Oil 
Company had no dissolution plan such as was prepared by the Tobacco Com- 
pany. It merely followed the decree of the Supreme Court. — Ed. 

2 Itahcs are the editor's. 



Methods of Dissolution 463 

kept closed until the date when said stocks are ready for distri- 
bution, which it is expected will be about December i, 191 1. 

Notice of the date when said stocks are to be distributed and of 
the re-opening of the books will be duly given. 

Yours very truly, 

H. C. FoLGER, Jr., 
Secretary. 
Exhibit 3 

THE DISSOLUTION OF THE POWDER TRUST ^ 

It is thereupon, on this 13th day of June, A. D. 191 2, ordered, 
adjudged and decreed as follows, to wit: 

2. That the remaining twenty-seven defendants, namely: 
Hazard Powder Company, Laflin & Rand Powder Company, 
Eastern Dynamite Company, Fairmont Powder Company, Judson 
Dynamite & Powder Company, Delaware Securities Company, 
Delaware Investment Company, California Investment Company, 
E. I. duPont de Nemours & Company of Pennsylvania, duPont 
International Powder Company, E. I. duPont de Nemours Powder 
Company, E. 1. duPont de Nemours & Company, Thomas Coleman 
duPont, Pierre S. duPont, Alexis 1. duPont, Alfred I. duPont, 
Eugene duPont, Eugene E. duPont, Henry F. duPont, Irenee 
duPont, Francis I. duPont, Victor duPont, Jr., Jonathan A. Haskell, 
Arthur J. Moxham, Hamilton M. Barksdale, Edmund G. Buckner 
and Frank L. Connable, are maintaining a combination in restraint 
of interstate commerce in powder and other explosives in violation 
of section i, of an Act entitled ''An Act to Protect Trade and 
Commerce against Unlawful Restraints and Monopolies," approved 
July 2, 1890, and have attempted to monopolize and have monopo- 
lized a part of such commerce in violation of section 2 of said Act. 

Wherefore, It is further ordered, adjudged and decreed that the 
twenty-seven (27) defendants above mentioned, and each of them 
be enjoined from continuing said combination and monopoly, 
and that said combination and monopoly be dissolved. 

3. That the petitioner having availed itself of the permission 
granted in said interlocutory decree and having presented a certain 
plan for the dissolution of said combination and the dissolution of 

* The United States of America v. E. I. duPont de Nemours df Company and 
Others. In the District Court of the United States, for the District of Dela- 
ware in Equity No. 280, Opinion of Court and Final Decree, pp. 2-13. 



464 Industrial Combinations and Trusts 

said monopoly, so far as the present situation of the parties and 
the properties involved will permit, to which plan the said tw^enty- 
seven (27) defendants do not object, which said plan is as follows: 

First: Dissolve the defendant corporation E. I. duPont de 
Nemours & Company (1902, Delaware corporation) and distribute 
its property among its stockholders. 

Second: Dissolve the defendant corporation Hazard Powder 
Company and distribute its property among its stockholders. 

Third: Dissolve the defendant corporation Delaware Securities 
Company and distribute its property among its stbckholders. 

Fourth: Dissolve the defendant corporation Delaware Invest- 
ment Company and distribute its property among its stockholders. 

Fifth: Dissolve the defendant corporation Eastern Dynamite 
Company and distribute its property among its stockholders. 

Sixth: Dissolve the defendant corporations California Invest- 
ment Company and Judson Dynamite and Powder Company and 
distribute their property among their stockholders. 

Seventh: Organize two corporations in addition to E. I. duPont 
de Nemours Powder Company (1903, New Jersey Corporation) 
which shall be capitalized as hereinafter provided, or reorganize 
the Laflin and Rand Powder Company and the Eastern Dynamite 
Company, or either of them, to be used instead of one or both of 
said two corporations, and in case the said Eastern Dynamite 
Company is so selected, then it need not be dissolved as herein- 
before provided. In case the Laflin and Rand Powder Company 
is not used under this paragraph dissolve said company and dis- 
tribute its property among its stockholders. 

To the first of said corporations transfer the following plants: 

For the Manufacture of Dynamite: 
Plant at Kenville, New Jersey, 
Plant at Marquette, Michigan, 
Plant at Pinole, CaHfornia. 

For the Manufacture of Black Blasting Powder: 
Plant at Rosendale, New York, 
Two (2) plants at Ringtown, Pennsylvania, 
Plant at Youngstown, Ohio, 
Plant at Pleasant Prairie, Wisconsin, 
Plant at Turck, Kansas, 
Plant at Santa Cruz, California. 



Methods of Dissolution 465 

For the Manufacture of Black Sporting Powder: 

Plant at Hazardville, Connecticut, 
Plant at Schaghticoke, New York. 

To the second of said corporations transfer the following plants: 
For the Manufacture of Dynamite: 

Plant at Hopatcong, New Jersey, 
Plant at Senter, Michigan, 
Plant at Atlas, Missouri, 
Plant at Vigorit, California. 

For the Manufacture of Black Blasting Powder: 

Plant at Riker, Pennsylvania, 
Plant at Shenandoah, Pennsylvania, 
Plant at Ooltewah, Tennessee, 
Plant at Belleville, Illinois, 
Plant at Pittsburg, Kansas. 

And permit the said defendant E. I. duPont de Nemours Powder, 
Company to retain the following plants: 

For the Manufacture of Dynamite: 

Plant at Ashburn, Missouri, 
Plant at Barksdale, Wisconsin, 
Plant at duPont, Washington, 
Plant at Emporium, Pennsylvania, 
Plant at Hartford City, Indiana, 
Plant at Louviers, Colorado, 
Plant at Gibbstown, New Jersey, 
Plant at Lewisburg, Alabama. 

For the Manufacture of Black Blasting Powder: 

Plant at Augusta, Colorado, 

Plant at Connable, Alabama, 

Plant at Oliphant Furnace, Pennsylvania, 

Plant at Mooar, Iowa, 

Plant at Nemours, West Virginia, 

Plant at Patterson, Oklahoma, 

Plant at Wilpen, Minnesota. 



466 Industrial Combinations and Trusts 

For the Manufacture of Black Sporting Powder: 
Plant at Brand37wine, Delaware, 
Plant at Wayne, New Jersey. 

For the Manufacture of Smokeless Sporting Powder: 
Plant at Carney's Point, New Jersey, 
Plant at Haskell, New Jersey. 

For the Manufacture of Government Smokeless Powder: 
Plant at Carney's Point, New Jersey, 
Plant at Haskell, New Jersey. 

Eighth: Transfer to or furnish the first of said two corporations 
with a plant for the manufacture of smokeless sporting powder and 
the brands now or heretofore owned by the Laflin and Rand Powder 
Company. Such plant to be located at Kenville, New Jersey, or some 
other suitable Eastern point, and to be of a capacity sufficient to 
manufacture 950,000 pounds per annum of sm^okeless sporting pow- 
der of the brands to be assigned to the first of said corporations. 

Ninth: Furnish said two corporations respectively with sufficient 
'Working capital and the necessary cash and faciUties to enable them 
to efficiently carry on the business which will attend the properties 
so to be transferred to them. 

Tenth: Transfer said properties to said two corporations re- 
spectively upon a valuation thereof based on the last inventory of 
said properties, to include a fair valuation for brands and good will, 
and issue to said E. I. duPont de Nemours Powder Company in 
payment therefore ^ securities of said two corporations respectively 
at par value as follows: Fifty per cent. (50%) of said purchase price 
in bonds not secured by mortgage w^hich shall bear interest at the 
rate of six per cent. (6%) per annum, payable if earned by the com- 
pany during said year, or to the extent thereof earned but not other- 
wise; nor cumulative; payable not less than ten years from date; the 
form of said bonds to be approved by the Attorney-General or the 
Court, which bonds shall be subject to call at one hundred and 
two (102) ; and the other fifty per cent. (50%) of said purchase price 
in the stock of said two corporations respectively, which for the time 
being shall be their entire stock issues. Upon the receipt of said 
stock and bonds by E. I. duPont de Nemours Powder Company, 
distribute the said stock and one-half of said bonds or the proceeds 
1 Thus in original. — Ed. 



Methods of Dissolution 467 

of the sale of said bonds among the stockholders of E. I. duPont de 
Nemours Powder Company. In the organization or reorganization 
of said two corporations to which said properties are to be trans- 
ferred, provide two issues of stock in said two corporations re- 
spectively, one of which shall have voting power and the other of 
which shall have no voting power. So distribute said stocks among 
the stockholders of E. I. duPont de Nemours Powder Company that 
any amounts thereof which upon said distribution shall go to any 
one of the twenty-seven defendants hereinbefore mentioned shall 
consist of one-half of said stock with voting power and one-half of 
said stock without voting power, and provide that upon the transfer 
through death or by will from any one of said twenty-seven de- 
fendants of any stock which has no voting power, to some person or 
persons other than one of said twenty-seven defendants herein, or 
upon the sale by any one of said twenty-seven defendants of any 
stock which has no voting power, to some person or persons other 
than one of said twenty-seven defendants herein, or their respective 
wives or children, said stock so sold or transferred may be exchanged 
for stock with voting power. 

Eleventh: Transfer to said two corporations, respectively, so far 
as practicable, a fair proportion of the business in explosives now con- 
trolled by E. I. duPont de Nemours Powder Company under time 
contract. 

Twelfth: During a period of at least five years furnish each of said 
two corporations respectively, under such arrangements as may be 
reasonable, such information from the records of the Trade Bureau 
maintained by E. I. duPont de Nemours Powder Company as may 
be desired. 

Thirteenth : During a period of at least five years furnish to each of 
said two corporations such facilities, information and use of organiza- 
tion, as E. I. duPont de Nemours Powder Company may operate or 
possess in reference to purchase of materials, experimentation, de- 
velopment of the art and scientific research, as said two corporations 
may desire from time to time, in the interests of their business, and 
upon some reasonable terms as to the cost thereof to said two cor- 
porations. 

And said plan having been duly considered by the Court, it is 
ordered, adjudged and decreed that the said defendants are respec- 
tively directed to proceed forthwith to carry said plan into effect, and 
it is further 

Ordered, adjudged and decreed, that if said defendants shall not 



468 INDUSTRLA.L COilBINATIOXS AND TRUSTS 

have carried said plan into operation and effected the same on or be- 
fore the fifteenth day of December, 191 2, then and in that event an 
injunction shall issue out of this Court restraining the said defendants 
in paragraph two of this decree mentioned and each of them, and 
their agents and ser\-ants from thereafter in any manner whatsoever 
placing the products of any of the factories owned by said defend- 
ants or said combination into the channels of interstate commerce, 
or such other rehef shall be granted by the appointment of a receiver 
or other^\ise as this Court may determine. 

4. That should the defendants find it impossible to perfect the 
details of said plan on or before the said fifteenth day of December, 
191 2, they may have leave to apply to the Court for further time to 
carry out said plan. 

5. That until said plan is carried into operation and effect, the 
said twenty-seven defendants hereinbefore named in paragraph two 
of this decree, are, and each of them is, and the agents and sen-ants 
of them are jointly and severally hereby enjoined from doing any 
acts or act which shall in any ^ise further extend or enlarge the field 
of operations, or the power of the aforesaid combination. 

It is further ordered, adjudged and decreed that the said twenty- 
seven (27) defendants, their stockholders, officers, directors, ser\-ants, 
agents and employees be and they are hereby severally enjoined and 
restrained as follows: 

From continuing or carrying into further effect after said fifteenth 
day of December, 191 2, the combination adjudged illegal in this suit, 
and from entering into or forming among themselves or with others 
any hke combination or conspiracy, by any method or de\'ice what- 
soever, the effect of which is or v»ill be to restrain interstate com- 
merce in explosives or to renew the unla\\-ful monopoly of such com- 
merce obtained and possessed by the defendants as adjudged herein, 
in \dolation of "Act to Protect Trade and Conmierce Against Unlaw- 
ful Restraints and Monopohes," approved July 2, 1890, and espe- 
cially: 

1. By causing the conveyance of the factories, plants, brands or 
business of either of said two new corporations to the other corpo- 
ration to E. I. duPont de Nemours Powder Company or \ice versa 
after the segregation of the properties among said corporations shall 
have taken place as hereui pro\-ided; by placing the stocks of either 
of said corporations in the hands of voting trustees or controlling the 
voting power of such stocks by any de\-ice; 

2. By making any express or implied agreement or arrangement 



Methods of Dissolution 469 

with one another or with others relative to the control or management 
of either of said corporations, or the price or terms of purchase, or 
of sale of explosives or relative to the purchase, sale, manufacture, 
or transportation of explosives which will have the effect of restrain- 
ing interstate commerce; or by making any agreement or arrange- 
ment of any kind between said corporations under which trade or 
business is apportioned between said corporations in respect either 
to customers or locahties. 

3. By offering or causing to be offered or making or causing to be 
made more favorable prices or terms of sale for the products manu- 
factured by them or either of them to the customers of any rival 
manufacturer or manufacturers than they at the same time offer to 
make their established trade, where the purpose is to unfairly cripple 
or drive out of business such rival manufacturer or manufacturers or 
otherwise unlawfully to restrain the trade and commerce of the 
United States in any of said products; provided that no defendant 
is enjoined or restrained from making any price or prices in the sale of 
said products, or any thereof, to meet or to compete with prices 
made by any other defendant, or by any rival manufacturer; and 
provided, further, that nothing in this decree shall be taken in any 
respect to enjoin or restrain fair, free and open competition. 

4. By either of said corporations retaining or employing the same 
clerical force or organization, or keeping the same ofl&ce or offices 
as any other of said corporations. 

5. By either of said corporations doing business directly or in- 
directly under any other than its own corporate name or the name of 
a subsidiary corporation controlled by it; provided, however, that, in 
case of a subsidiary corporation, the controlling corporation shall 
cause the products of such subsidiary corporation which are sold in 
the United States and bear the name of the manufacturer to bear also 
a statement indicating the fact of such control. 

It is further ordered, adjudged and decreed that said defendants 
cancel and annul: 

a. Agreement of October 2, 1902, between William Barclay Par- 
sons, of the City of New York, and the Delaware Securities Company. 
Petitioner's Record, Exhibits, Volume 4, page 1984. 

h. Agreement of October 6, 1902, between H. deB. Parsons of 
the City of New York, and the Delaware Securities Company. Peti- 
tioner's Record, Exhibits Volume 4, page 1986. 

c. Agreement of the second day of October, 1902, between 
Schuyler L. Parsons, of the City of New York, and the Delaware 



470 Industrial Combinations and Trusts 

Securities Company. Petitioner's Record, Exhibits, Volume 4, 
page 1988. 

d. A like and identical agreement made about the same date 
between J. A. Haskell and the Delaware Securities Company, de- 
scribed in Petitioner's Testimony, Volume 2, page 1012. 

It is further ordered, adjudged and decreed that during a period of 
five years from the date hereof each of said corporations, the E. I. 
duPont de Nemours Powder Company and said other two corpora- 
tions, their stockholders, officers, directors, agents, servants and em- 
ployees, be hereby enjoined and restrained as follows: 

1. None of said corporations shall have any officer or director who 
is also an officer or director in any other of said corporations. 

2. None of said corporations shall employ the same agent or agents 
for the sale in interstate commerce of explosives which might be sold 
in competition with each other; provided that any one of said cor- 
porations may sell its products on commission through a merchant or 
dealer who is similarly employed by either or both of said corpora- 
tions. 

3. None of said corporations shall directly or indirectly acquire any 
stock in another of said corporations or purchase or acquire any of 
the factories, plants, brands or business of such other corporation. 

It is further ordered, adjudged and decreed that each and all of 
the individual defendants by this decree adjudged to be engaged in 
said combination, while holding stock in said two corporations and 
E. I. duPont de Nemours Powder Company or any two thereof be 
enjoined and restrained from at any time within three years from 
the date hereof acquiring, owning or holding, directly or indirectly, 
any stock or an legal or equitable interest in any stock in either of 
said two corporations to which said properties shall be transferred, 
in excess of the amount to which he may be entitled under the 
provisions of the plan herein mentioned when the same shall have 
been carried out as proposed; provided, however, that any of said 
individual defendants may notwithstanding this prohibition acquire 
from any other or others of said defendants, or in case of death, from 
their estates, any of the stock held by such other defendant or de- 
fendants in said corporations and may acquire their proportions of 
any increase of stock. 

It is further ordered, adjudged and decreed that any new company 
or companies organized for the purpose of taking property imder the 
provisions of this decree or other^vise, necessary to the carrying out 
of this plan, shall, after their formation and by appropriate proceed- 



Methods of Dissolution 471 

ings, be made parties to this cause, and subject to the provisions of 
this decree and bound by the injunctions herein granted. 

It is further ordered, adjudged and decreed that any party hereto 
may make apphcation to this Court for such orders and directions as 
may be necessary or proper in relation to the carrying out of such 
plan and the provisions of this decree. 

It is further ordered, adjudged and decreed that the twenty-seven 
(27) defendants hereinabove mentioned, do pay to the United States 
Government its cost in this cause. 

It is further ordered, adjudged and decreed that jurisdiction of this 
cause is retained by this Court, for the purpose of making such other 
and further orders and decrees as may become necessary for carrying 
out the plan herein set forth. 

It is further ordered, adjudged and decreed that after the plan here- 
inabove mentioned shall have been carried into effect a report shall 
be made to this Court for its approval, setting out the manner in 
which said plan shall have been carried out. 



CHAPTER XV 

EFFICACY OF DISSOLUTION 

NOTE 

The pronounced opposition that developed upon the part of the 
independents to the method of dissolution proposed by the American 
Tobacco Company led to an interesting controversy as to the efficacy 
of the method employed. Effort has been made to set forth both 
sides of the controversy and also to have the exhibits show how 
the independents would have worked out the dissolution process. 

At the moment this book goes to the publishers, a controversy has 
developed over the efficacy of the dissolution of the Standard Oil 
Company. As the last exhibit in the chapter shows, it is alleged that 
this dissolution has been merely a farce. — Ed. 

Exhibit i 

results of the tobacco dissolution plan as claimed by the 

petitioners ^ 

Your Petitioners show unto the Court that upon the adoption and 
execution of this plan the combination heretofore adjudged to exist 
will have been effectually dissolved, and out of the elements hereto- 
fore composing the same, a new condition which -^ill be honestly in 
harmony mth and not repugnant to the law, will have been brought 
about as follows: 

The tin foil business now done and controlled by The Conley Foil 
Company will be divided into two companies having no interest 
whatsoever the one in the other, and neither in a dominant position 
mth respect to the tin foil business. 

The hcorice business now done and controlled by MacAndrews & 
Forbes Company will be divided into two companies with no interest 
in nor connection with each other, and neither in a dominant position 
in the Hcorice business. 

^ United States of America v. The American Tobacco Company and others. 
Petition of the American Tobacco Co., In the Circuit Court of the United States 
for the Southern District of New York, pp. 29-31. 

472 



Efficacy of Dissolution 473 

American Stogie Company will be dissolved, and its business dis- 
integrated. 

The business of American Cigar Company will be disintegrated and 
it will have no dominant position in any branch of the cigar business. 

The snuff business now done and controlled by American Snuff 
Company will be divided into three companies, American Snuff 
Company itself and two other companies to be organized, and none of 
the three will have any interest in nor connection with either of the 
others. 

The American Tobacco Company, through distribution out of its 
surplus, will have denuded itself of any interest in, or control over, 
the tin foil business, the licorice business and the snuff business. 

It will have stripped itself of any interest in or control over R. J. 
Reynolds Tobacco Company, a company manufacturing and selling 
tobacco in the Southern States. 

It will have completely severed all relations with the Porto 
Rican-American Tobacco Company, manufacturing and selling 
cigarettes and cigars in Porto Rico, and selling in the United States 
cigars manufactured in Porto Rico. 

It will have divested itself of all interest in or association with 
British-American Tobacco Company, Limited, The Imperial 
Tobacco Company (of Great Britain and Ireland), Limited. 

It will have parted with all its interest in United Cigar Stores 
Company, a company engaged in the retail distribution of cigars 
and tobacco. 

The American Tobacco Company itself, as an operating company, 
will be broken into three companies, each completely equipped for 
the conduct of a large tobacco business, neither of which will own 
any interest in any other, and neither of which will be dominant in 
the tobacco trade, whether reference be had to proportion of sales 
in any branch of the business, or regard be had to dominating own- 
ership of popular and valuable brands, or regard be had to pur- 
chase of any type of leaf tobacco, or regard be had to any other 
measure of importance in the tobacco trade. 

All covenants that prevent The American Tobacco Company 
from extending its business abroad, or British- American Tobacco 
Company, Limited, or The Imperial Tobacco Company (of Great 
Britain and Ireland), Limited, from extending their business in 
the United States, will be terminated, and each will be free to en- 
gage in business throughout the world. 

AH covenants not to engage in the tobacco business made by 



474 Industrial Combinations and Trusts 

vendors or others will be terminated, leaving all free to engage in 
any branch of the tobacco business. 

Thus the business in tobacco and related products heretofore con- 
trolled by The Amercian Tobacco Company, or by companies in 
which it owns a controlling or large interest, ■\Adll not only be com- 
pletely divorced from such control, but -^ill be distributed among 
fourteen separate and independent companies, none of which will 
have any control over or interest in any other, and none of which 
vail have any preponderating influence in any branch of the busi- 
ness, either as a manufacturing company, a selling company, or 
as a purchaser of any type of leaf tobacco. 

Finally, no small group of men, nor even the twenty-nine indi- 
vidual defendants in the aggregate, will own the control of any of the 
principal, accessory or subsidiary companies defendant, and the 
control of The American Tobacco Company itself and of the new 
companies to be formed will be vested in a body of more than six 
thousand stockholders. 



Exhibit 2 

claim or the american tobacco company with respect to the 
division of the to] 
volume and value 



DIVISION OF THE TOBACCO BUSINESS OF THE UNITED STATES BY 
1 



Percentage in Percentage 

... ^.,. .^.^jl? Volume (Lbs. in 

' ' or Thousa^tds) Value 

Cigarettes 

American Tob. Co 37-ii SS-'^S 

Liggett & Meyers 27.82 21.03 

Lorillard Co 15-27 26.02 

Others never in any way connected with 

the combination 19.80 19.80 

Smoking Tobacco 

American Tob. Co 33-^^ 4o-S3 

Liggett & Myers 20.05 16.47 

Lorillard Co 22.82 18.88 

Reynolds Tob. Co 2.66 2.73 

^Op. Cit. Petition of the American Tobacco Company. Exhibit "B", 
PP- 38-39- 



EmcACY or Dissolution 



475 



Percentage in 
Volume (Lbs. 
or Thousands 
Smoking Tobacco — Continued. 
Others never in any way connected with 

the combination 21.39 

Plug Tobacco 

American Tob. Co 25.32 

Liggett & Myers 33-^3 

Lorillard Co 3.73 

Reynolds Tob. Co 18.07 

Others never in any way connected with 

the combination i9-05 

Fine Cut Tobacco 

American Tob. Co 9.94 

Liggett & Myers 41.61 

Lorillard Co 27.80 

Others never in any way connected with 

the combination 20.65 

Cigars 

American Cigar Co. 6.06 

Lorillard Co 5.72 

American Stogie Co 1.58 

Others never in any way connected with 

the combination 86.64 

Snuff 

American Snuff Co 32.05 

Helme Company 30.88 

Weyman & Bruton ^ 29.25 

Others never in any way connected with 

the combination 7.82 

Little Cigars 

American Tob. Co 15.43 

Liggett & Myers 43-78 

Lorillard Co 33-84 

Others never in any way connected with 

the combination 6.95 

^ Thus in original. Elsewhere Weyman-Bruton. — Ed. 



Percentage 

in 

Value 



21.39 

22.98 

37.84 

4.64 

15.49 

19.05 

13.52 
36.26 

29.57 
20.65 

8.90 
2.88 
1.58 

86.64 



35-55 
28.95 
27.68 

7.82 



13.41 
38.69 

40.95 
6.95 



476 



Industrial Combinations" and Trusts 



Exhibit 3 

distribution oe factories and principal brands as claiaeed by 

the amercla.n tobacco coilpany ^ 
The American Tobacco Company: 



Durham, N. C. 

New York, 
Milwaukee, Wis. 
Dan\ille, Va., 
Baltimore, 
New York, 
Baltimore, 
Louis\ille, 
New York, 
Baltimore, 
Richmond, 
Nash\ille, 
Richmond, 
Brookhm, 
Reids\'ille, N. C. 
Middletown, Ohio, 
Louis\ille, 



(Blackwell's Durham Tobacco Co.) 

(Butler-Butler, Inc.) 

(F. F. Adams Tobacco Co.) 

DamoLle Branch — Httle cigars. 

EIlis-x\ — little cigars. 

Duke Branch. 

Feigner Branch. 

Finzer Branch. 

Kinney Branch. 

Marburg Branch. 

Mayo Branch. 

(Nash\-ille Tobacco Works) 

(R. A. Patterson Tobacco Co.) 

Penn Street Branch — cigarettes. 

(F. R. Penn Tobacco Co.) 

Sorg Branch. 

National Branch. 



Liggett & Myers Tobacco Company: 



St. Louis, 
Chicago, 
Richmond, 
San Francisco, 
Chicago, 
St. Louis, 
Toledo, 
Louisville, 
New Orleans, 
Durham, 
Wilmington, Del. 
Philadelphia, 
P. LoRiLLARD Company: 
Jersey City, 
New York, 



Liggett & Myers. 

(Spaulding & ]\Ierrick.) 

Allen & Ginter Branch. 

(John B oilman Co.) 

Chicago Branch. 

Catlin Branch. 

(Pinkerton Tobacco Co.) 

Nail & WiUiams Tobacco Co.) 2 

W. R. Irby Branch. 

W. Duke Sons & Co. Branch. 

Wilmington-A — Httle cigars. 

Philadelphia-A — little cigars. 

Lorillard factory. 
(S. Anarg^TOs.) 



45- 



Op. cit. Petition of the American Tobacco Company. Exhibit "D," pp. 42- 

2 Thus in the original. — Ed- 



Efficacy of Dissolution 
P. LoRiLLARD Co: — Continued. 



477 



Middletown, Ohio 


(Luhrman & Wilbern Tobacco Co.) 


Philadelphia, 


Philadelphia-B- 


-httle cigars. 


Wilmington,, Del., 


Wilmington-B— 


-little cigars. 


Danville, Va. 


Danville-B — little cigars. 


Brooklyn, 


Penn St.— Uttle 


cigars. 


Baltimore, 


Ellis Branch-B- 


-Uttle cigars 


Jersey City, ) 
Richmond, f 


(Federal Cigar Co.) 


HE American Tobacco Company will have: 




Smoking Tobacco Brands: 




Lucky Strike, 




Bull Durham, 


Tuxedo, 




Five Brothers, 


Peerless, 


Plug Tobacco Brands: 


Old EngHsh. 


American Navy, 




Ivy, 


Square Deal, 




Corker, 


Spear Head, 




Town Talk, 


Piper Heidsieck, 




Newsboy, 


Standard Navy. 


Cigarette Brands: 




Sweet Caporal, 




Hassan, 


Pall Mall, 


Little Cigar Brand: 


Mecca. 


Sweet Caporal. 


Fine Cut Brand: 




Virgin Leaf. 







Liggett & Myers Tobacco Company will have: 
Smoking Tobacco Brands: 
U. S. Marine, 
Sweet Tip Top, 
Duke's Mixture, 
Home Run, 

Plug Tobacco Brands: 
Star, 
Drummond's Natural Leaf, 



King Bee, 
Red Man, 
Velvet. 



Horse Shoe. 



478 



Industrial Combinations and Trusts 



Liggett & Myers Tobacco Company will have: — Continued. 
Cigarette Brands; 

American Beauty, Imperiales, 

Fatima, Home Run, 

Piedmont, King Bee. 

Little Cigar Brand: 
Recruit. 

Fine Cut Brands: 

Sweet Cuba,h Sterling. 



P. Lorillard Company will have: 

Smoking Tobacco Brands: 
Union Leader, 



Honest, 



Sensation, 
Just Suits, 

Climax, 


Plug Tobacco Brands: 


Polar Bear. 
Planet. 


Helmar, 
Murad, 
Mogul, 

Between the Acts. 


Cigarette Brands: 
Little Cigar Brand: 


Turkish Trophies, 
Egyptian Deities. 


Tiger, 


Fine Cut Brands: 


Century. 



Exhibit 4 

distribution of purchases of different types of tobacco 
with estimate of average aggregate as claimed by the 

AMERICAN TOBACCO COMPANY ^ 

Pounds 
The American Tobacco Company: 

Burley 41,969.957 

Virginia and North Carolina 51,295,870 

Seed Leaf 6,112,099 

Turkish 2,988,898 

Dark Western 19433^365 

^ Op. Cit. Petition of the American Tobacco Company, Exhibit "E," 
pp. 46-47. 



Efficacy of Dissolution 479 

Liggett & Myers Tobacco Company: 

Burley 69,163,946 

Virginia and North Carolina 27,755,411 

Seed Leaf 5,676,180 

Turkish 558,611 

Dark Western 3,196,866 

P. LoRiLLARD Company: 

Burley 24,074,643 

Virginia and North Carolina 2,556,007 

Seed Leaf 19,993,726 

Turkish 3^974,3^6 

Dark Western 1,446,213 

R. J. Reynolds Tobacco Company: 

Burley 5,000,000 

Virginia and North Carolina 25,000,000 

Seed Leaf 

Turkish 

Dark Western 

British- American Tobacco Company, Limited: 

Virginia and North Carolina 40,000,000 

Other types 10,000,000 

Estimate of Total Average Crop: 

Burley 200,000,000 

Virginia and North Carolina 240,000,000 

Dark Western 200,000,000 

Seed 180,000,000 

Turkish 90,000,000 

Exhibit 5 
claim of the attorney general ^ 

Coming now to the general features of the plan as proposed; as 
was said here yesterday, it is a purely practical commercial problem. 

1 Oral Argument of George W. Wickersham on Hearing of Application for 
Approval of Plan of Disintegration in the case of the United States v. The Amer- 
ican Tobacco Company. In the Circuit Court of the United States for the 
Southern District of New York, pp. 9-15. 



480 Industrial Combinations and Trusts 

I thought, when the plan was before the conference, the last time 
that we had a conference between counsel and the court, that if 
certain modifications were made and certain features were changed 
it was getting along pretty nearly to a point where your honors 
would view it with favor, and I thought particularly that the dis- 
tribution of brands, upon which so much stress and insistence was 
laid during the trial, and the distribution of the volume of pur- 
chases of raw material by these various companies, was very fairly 
worked out. After that conference, there came to me representa- 
tives of various interests that have appeared before your Honors 
to-day and yesterday, and they brought to my attention the same 
considerations that they have brought here, and I confess I was 
very much troubled by them. So I turned to the only authoritative 
source at my disposal for the facts of the subject, namely, the 
Bureau of Corporations of the Department of Commerce and La- 
bor, and the Commissioner placed at my disposal one of their ex- 
perts — indeed the principal expert in this tobacco business, who 
had himself prepared very largely, if not entirely, the report on the 
tobacco industry which was recently pubUshed by that bureau; 
and I had a verbal report from him a few days ago, and to-day only 
have I got his written report. It is not formal enough yet to be 
the report of the Bureau, but it is the report of a gentleman of very 
large knowledge and experience in this field, a gentleman very- 
familiar mth the business, representing entirely the Government's 
side in the matter, and who, on behalf of the Government, con- 
ducted the investigation which resulted in his report. I am going 
to file that report with the Court, because it strongly confirms the 
impression that I had as to the fairness of distribution of industries 
in the plan, and it effectually answers the suggestions made by the 
so-called independents and dealers. I would like to read part of 
that report now, because we have had so much on the subject. 
Take the distribution of brands. For the purpose of showing ex- 
actly the nature of the distribution of the brands this gentleman 
has prepared, and is to submit separately and supplemental to 
tills report, a statement showing the output of each brand assigned 
for the different companies, the class of the product to which it 
belongs, and the territorial distribution; but he does annex to his 
present report a summary of the territorial distribution of the 
products: 

''The general result," he says, "of my examination of the brands 
and their territorial distribution was that there seems to be no ab- 



Efficacy of Dissolution 481 

solute separation of types and classes of brands for the different com- 
panies. The method of distribution by plant which has been fol- 
lowed has resulted in the grouping of similar classes of brands, so 
that the high-grade cigarette, ordinary domestic cigarette, granu- 
lated tobaccos, long-cut and plug-cut tobacco, fine cut, plug and 
twist brands assigned to each company will not be exactly evenly 
divided. The predominance of one company over another, however, 
is not such as to entirely exclude one company from encroaching on 
the territory of another. To some extent the predominance of one 
company over another, in a particular line of product, is necessary 
on account of the very large output of such individual brands. The 
company, for instance, to which Bull Durham tobacco is assigned on 
account of the very large preponderance of this brand in its class will 
obtain a preponderant position in the higher-priced granulated 
business. The advantages are, however, offset by new brands dis- 
tributed to each of the other concerns, such as 'Velvet,' 'Prince 
Albert,' and 'Our Advertiser.' Each of these newer brands has in 
it the elements of strong competition, and each seems fair to de- 
velop strength enough in its own particular Hne to make a formida- 
ble competitor. In the low-grade granulated tobaccos the Liggett 
& Myers concern have a predominating position on account of the 
great importance of the Duke's Mixture brand, which makes up 
nearly 80 per cent of the low-grade granulated tobaccos produced 
by the combination. Such a distribution, therefore, which should 
give each of the companies approximately the same proportion of 
a particular class of goods, is practically impossible as long as par- 
ticular brands make up a large proportion of a single line of product. 
"In plug-cut tobaccos, principally distributed by P. Lorillard and 
the American Tobacco Company, the latter will hold a predom- 
inating position, but not to the extent that I had supposed. A 
number of the plug-cut brands of the Lorillard Company are di- 
rectly competitive with those of the American Tobacco Company, 
which, as well as those of the former concern, have a large sale in 
New England, Pennsylvania, and the Central States. 

"Long-cut brands have been assigned to all three concerns. It 
can not be said that any one company has local control over this 
class of product. Although the Liggett & Myers output concerns 
itself principally with Chicago and its immediate environment, it 
has brands which are strong competitors of the American, and 
which will compete in almost all the States directly with the 
American and Lorillard Companies for this class of product." 



482 Industrial Combinations and Trusts 

I will not go through that, but he has reviewed the great distribu- 
tion of brands and finds that in each instance, while there is pre- 
dominance given to one company which has a particularly profitable 
brand of very large sale, there is in every instance a certain competi- 
tive interest assigned to one of the other companies, preventing 
what is called a monopoly in one field being given to any one of 
these companies, even the one which secures the very large selling 
brand. 

Take the purchasers of leaf tobacco. He has prepared a table 
which is annexed to this report — that is, the companies have pre- 
pared it under his direction — showing the full (hstrib.ution after 
disintegration. 

"It is apparent from this tabulation that no one of the compa- 
nies will have an exclusive or monopolistic field in the purchases 
of any one type or any one grade of a type of leaf. In fact, the 
American Tobacco Company, the Liggett & Myers concern, the 
Lorillard Company, and the R. J. Reynolds' Tobacco Company 
will each of them be large and important purchasers of Burley 
tobacco. A consideration of the amount of purchases of different 
grades of Burley tobacco showed, moreover, that these companies 
would each purchase a very considerable amount of the different 
grades, so that no one company can be said to have the field in the 
purchase of any leaf grade exclusively to itself. There will be not 
only an increase in the number of leaf buyers in the Burley market, 
but also active competition for the same, or similar grades. The 
Southern Leaf situation is very much the same as the Burley 
situation. The American Tobacco Company, the Liggett & Myers 
concern, and the British- American Tobacco Company will be each 
large and important purchasers of Southern Leaf of practically the 
same types and grades, and no one company will purchase a pre- 
ponderating proportion of any particular group of grades of this 
type. 

''The same type and grade of Southern Leaf may be used in the 
manufacture of such types of cigarettes, in the manufacture of 
granulated smoking, and in the manufacture of plug tobaccos. It 
is a fact, therefore, that though some of the concerns may not pur- 
chase leaf for the same products in supplying their needs for the 
entire field of their operations, they must come into active competi- 
tion against each other. 

"The American Tobacco Company will purchase by far the 
larger proportion of the dark western tobaccos. Neither the 



Efficacy of Dissolution 483 

Liggett & Myers nor the Lorillard Company, or the R. J. Reynolds 
Company will purchase an appreciable amount of this type of leaf. 
The total purchases of the American Tobacco Company in this 
field will amount to about 19,000,000 pounds, while that of the 
other companies will be only a few million pounds annually. The 
combination, however, is only a small factor in the western dark leaf 
market. By far the greater proportion of this class of product is 
purchased for foreign governments. The fact that the American 
Tobacco Company will have no material competition in this field 
from Liggett & Myers or P. Lorillard, therefore, does not deprive 
the market of a fair amount of competition. 

"While the American Tobacco Company is the only concern in 
the above group that will purchase dark western types, it should be 
borne in mind that there will be competition to a certain extent with 
the American Snuff Company and Bruton & Wayman ^ Company 
and George W. Helme Company, which require this same type of 
leaf for their products." 

I lay great stress on that report because it is the report of an 
expert who is unusually familiar with the subject, and who possesses 
great knowledge on the subject, and it comes as the result of an 
investigation undertaken for the purpose of determining and ad- 
vising me of the attitude which I should take with respect to the 
practical commercial features of this plan ; and I know of no better 
way of securing within a short time for the consideration of the 
Court the commercial and economic facts by which you must be 
guided. 



Now, there is one feature of this combination which, in my 
personal experience, has been the subject of more complaints than 
all of the rest put together. That is the United Cigar Stores 
Company. The connection of that organization with this combina- 
tion had given the combination the greatest opportunity to — I do 
not know that I can say to injure, but certainly to harass, the 
domestic trade and to incense a larger number of people than any- 
thing else they have done, because they have gone in and reached 
the poor corner dealer, bought the house over his head, and when 
his lease came to an end, instead of his being able to renew it as 
formerly, he finds that he can not get a renewal of the lease, that 
it has been taken by the United Cigar Stores Company. It was the 
^ Thus in original. Should be Weyman-Bruton. — Ed. 



484 Industrial Combinations and Trusts 

hand of the big trust; it reached out and touched the httle man 
who has nobody to protect him. I have on my files in Washington 
letters — my files are full of letters and complaints running down to 
within the last few days, and I do think if that concern can be cut 
loose, if as a condition of this plan your honors require them to 
get rid, require these defendants to get rid of their stock in that 
concern, it would do more to make the rest of the plan acceptable 
to the people of this country than anything else that could be done. 
Of course Mr. Stroock naturally, speaking for the United Cigar 
Stores Company, objects to that, because it cuts him away from 
that convenient, intimate, and friendly relationship with the 
sources of supply which in the past has been the means of enabling 
the company to so prosper. But they have gone along; they are a 
great big organization to-day. They have something like a thousand 
stores, or seven hundred or eight hundred, at least, scattered 
throughout the country, and they have ample capital, and, with 
the impetus that they have got, they are the most potent compet- 
itor of the small dealer in the United States. I know they have 
not been adjudged to be, in specific language, an illegal combina- 
tion, but each and every part of this com.bination has been adjudged 
by this decree to be illegal. The decree is comprehensive enough to 
include them, if your honors shall be so advised — comprehensive 
enough to empower your honors to include them, just as much as 
any one of the corporations or combinations before you. Therefore, 
I say, it is entirely within your honors' power, whether you choose 
to exercise it or not, to say, as a condition of this plan: You have got 
to get rid of them and turn them loose so that that concern will no 
more have any connection with the American Tobacco Company 
or with any of the distributive companies or with any of these 
individuals who have built up this combination through so many 
years. 



Efficacy of Dissolution 485 



Exhibit 6 

Objections of National Cigar Leaf Tobacco Association, the 
Cigar Manufacturers' Association, and the Independent 
Tobacco Salemen's Association to the Plan of Disinte- 
gration, Filed by the American Tobacco Co. and Others 
October 16, 1911 ^ 

Louis D. Brandeis, Felix H. Levy, counsel for remonstrants. 

United States of America against American Tobacco Co. and others. 

To the honorable circuit judges sitting in the southern district of 
New York: 

The above-named associations, in pursuance of leave granted 
October 18, 1911, respectfully submit herewith certain objections 
to said plan. 

We submit that the plan is not in accordance with the opinion 
of the Supreme Court of the United States in this cause. The plan 
if approved, would result in legalizing monopoly instead of restoring 
competition. Its effect upon the tobacco planters, independent 
tobacco manufacturers, the jobbers, the retailers, and upon labor 
engaged in the manufacture of tobacco products would be more 
injurious than the continuance of the present illegal monopoly. 

I. 

Fundamental Defects. 

There are five fundamental defects in the plan, each so serious 
that it forms alone a sufficient ground for the rejection of the plan. 

COMMON ownership. 

First. The plan proposes to divide the main properties of the 
trust among several corporations legally distinct, but to distribute 
the stock in these several corporations pro rata among common- 
stock holders of the American Tobacco Co. No plan can he elective 
to restore competition which does not include as an essential condition 
a provision that the separate corporations or segments which are to 
carry forward the business of the trust shall at the outset and for a 

^ Hearings before the Committee on Interstate Commerce on the Control of 
Corporations, Persons, and Firms engaged in Interstate Commerce. United 
States Senate, 62nd Cong., 2nd Sess. 1911-1912, pp. 315-322. 



486 Industrial Combinations and Trusts 

limited period thereafter, be owned by absolutely distinct groups of in- 
dividuals ^ 

(a) Under the proposed distribution of the securities of the 
several corporations formed to carry forward the business of the 
trust as alleged competitors, competition between these concerns 
would of course be legally possible, but common ownership of the 
stock would make it certain that in fact there w^ould be (at least 
in the immediate future) no real competition. This would be so, 
no matter how great the number of corporations into which the 
business of the trust were divided. It is contended that the 29 
individual defendants control to-day only 56 per cent of the voting 
power of the American Tobacco Co., and that under the plan they 
will control a smaller per cent of the stock and voting power of the 
several segments into which the trust is to be di\dded. But it is 
obvious that a legal majority of the stock of a corporation is not 
essential to actual control. A small minority may control; and as 
the same individuals would at the outset select the directors and 
the officers of each of these colorable competitors, it is certain that 
the officers and the directors of the several companies would be 
friendly, if not in fact identical. 

(b) In view of the past affiliations of these stockholders, no 
reasonable assurance of competition between the several segments 
of the trust can be had, unless each segment is owned by an en- 
tirely distinct group of individuals. Such ownership of separate 
corporations by distinct groups of individuals w^as the condition 
w^hich existed prior to the illegal combination which restrained 
competition. Real competition is not a commercial possibility 
unless that essential condition of competition be restored. 

(c) The framing of a plan for dividing among distinct groups of 
individuals the stock of the several companies which take over the 
properties of the trust would present no serious difficulties. The 
division would be effected by valuation and allotment in a manner 
similar to that pursued when partition is made among heirs or other 
tenants in common of several parcels of land, whereby each person 
is allotted in severalty a particular parcel of real estate formerly 
held in conunon. 

(d) It is essential that the ownership of the stock in the different 
corporations which are to carry forward the business of the trust 
as competitors of one another should not merely be held at the 
outset by distinct groups of individuals, but that it should be so 

1 Italics are the editor's. 



Efficacy of Dissolution 487 

held for a limited period thereafter, say, for five years. Provision 
should therefore be made prohibiting by injunction those who at 
the time of distribution acquire stock in any one of the segment 
corporations from acquiring stock during such period in any other 
of the segments. This injunction should not be confined in its 
operation to the 29 individual stockholders who are now named as 
defendants. It should extend to every stockholder who participates 
in the distribution under the plan. No legal or practical difiiculty 
would present itself in the adoption of such a course. The stock- 
holders would be made parties to the proceeding and bound by 
the decree in the same manner that a decree becomes operative upon 
a purchaser at a foreclosure sale. 

DOMINATING CONCERNS. 

Second. The plan provides for a division (generally) among only 
three huge corporations of nearly all of the properties now held by 
the trust. No plan can be effective to restore competition which 
does not include as an essential condition that no department of 
the tobacco business now conducted by the trust shall be divided 
into segments so large as to prevent the independents engaged in 
that branch of the business from competing with them under fair 
conditions. 

Under the plan each one of the three or four corporations designed 
to carry forward the main businesses of the trust would hold alone so 
large a percentage of the whole business of the country in the re- 
spective departments of the tobacco trade as to dominate the in- 
dependents engaged in that department of the tobacco business, 
whether as planters, manufacturers, or dealers, and thus unreason- 
ably restrain trade. The three or four concerns formed to carry for- 
ward the main business of the Tobacco Trust would together be 
in a position to crush the independents even more effectually than 
has been done in the past. 

In determining how large the several segments into which the 
trust's business is to be divided, may properly be, existing trade 
conditions must be considered. The question is one that should be 
decided not by generalizations, but by reference to the specific com- 
mercial facts prevailing in the several departments of the tobacco 
trade. That each of the three or four corporations would under 
the proposed plan in fact dominate and could crush the existing 
independents becomes clear when their relative positions in the trade 
is considered. 



488 Industrial Combinations and Trusts 



CIGARETTES. 

A. The cigarette business of the trust is divided by the plan among 
three concerns. It should be divided among at least seven separate 
concerns. 

The American Tobacco Co. would have 33.15 per cent in value 
of the whole cigarette business of the country; the Lorillard Co., 
26.02 per cent; and the Liggett & Myers Co., 21.03 per cent. All 
of the independents together control only 19.80 per cent. Each of 
the three companies among which the trust's cigarette business is 
to be divided would thus start with a cigarette business greater than 
the aggregate business of all the independents. 

(a) While it is undesirable to place a limit upon the size to which 
a business may grow, or to determine the proportion of the whole 
business of the country in any article which may properly be ac- 
quired by one concern through such growth, it is absolutely neces- 
sary to take relative size into consideration when it is sought to 
restore competition which has been suppressed through illegal com- 
bination. 

(b) Furthermore, under the plan the distribution of the brands of 
cigarettes is such that each of the three colorable competitors who are 
to carry forward the business of the trust will, as against the other 
two, dominate a particular branch or market of the cigarette trade. 

(c) In considering the propriety of dividing the present cigarette 
business of the trust into more than 3 units, it should be noted that 
this business represents the absorption into the trust of 18 separate 
business concerns, that the cigarettes now manufactured by the 
trust are of several distinct classes, and that, according to latest 
information available, the trust even now manufactures its cigarettes 
in 7 separate factories. 

SMOKING TOBACCO. 

B. The smoking- tobacco business of the trust is divided by the 
plan among 4 concerns. It should be divided among at least 12 
separate concerns. 

(a) The American Tobacco Co. would, under the plan, have 40.53 
per cent in value of the whole smoking-tobacco business of the coun- 
try; the Lorillard Co., 18.88 per cent; and the Liggett & Myers Co., 
16.47 per cent; while all the independents together would have only 
21.39 P^r cent. In other words, the American Tobacco Co. would 
alone have a smoking-tobacco business nearly twice that of all the 



Efficacy of Dissolution 489 

independents together. The Liggett & Myers Co. and the Lorillard 
Co. would each start with a smoking-tobacco business nearly as 
large as the aggregate business of all the independents. 

(b) Furthermore, under the plan, the distribution of the brands 
is such that three of the four colorable competitors would, as against 
the others, dominate a particular branch or market of the smoking- 
tobacco trade. 

(c) In considering the propriety of insisting upon dividing the 
smoking-tobacco business of the trust among a larger number of 
corporations, it should be remembered that the smoking-tobacco 
business now controlled by the trust is the result of combining over 
57 separate businesses; that the smoking tobacco manufactured is of 
several distinct classes; and that at the present time, and accord- 
ing to the latest information available, the trust manufactures its 
smoking tobacco in 12 different factories. 

PLUG TOBACCO. 

C. The plug-tobacco business of the trust is to be divided, by the 
plan, among 4 companies. It should be divided among at least 12 
separate concerns. 

(a) Liggett & Myers Co. would have, under the plan, 37.84 per 
cent in value of the plug-tobacco business of the country, the Amer- 
ican Tobacco Co. 22.98 per cent, and the Reynolds Tobacco Co. 
15.49 per cent, as against only 19.05 per cent now held by all the 
independents together. Liggett & Myers Co. would have a plug- 
tobacco business nearly twice as large as the aggregate business of 
all the independents. The American Tobacco Co.'s plug- tobacco 
business would be larger than the aggregate of all the independents, 
and the Reynolds Tobacco Co.'s plug-tobacco business would be 
more than three-quarters the aggregate business of all the inde- 
pendents. 

(b) Furthermore, under the plan, the distribution of the brands 
is such that at least two of the four companies vs^ould, as against the 
others, dominate particular branches or markets of the plug-tobacco 
trade. 

(c) In considering the propriety of dividing the plug-tobacco 
business of the trust among a larger number of corporations, it should 
be noted that the present plug- tobacco business of the trust is the 
result of combining at least 43 sepptrate concerns; that plug tobacco 
manufactured by the trust is of several distinct classes; and that, 



490 Industrial Combinations and Trusts 

according to the latest information available, the trust manufactures 
its plug tobacco in 12 different factories. 

LITTLE CIGARS. 

D. The little-cigar business of the trust is divided, by the plan, 
among three concerns. It should be divided among at least seven 
separate concerns. 

(a) The Lorillard Co. would, under the plan, have 40.95 per cent 
in value of the little-cigar business of the whole country, the Liggett 
& Myers Co. would have 38.69 per cent, and the American Tobacco 
Co. 13.41 per cent, as against only 6.95 per cent held by the aggre- 
gate of all the independents. That is, the Lorillard Co. would con- 
trol nearly seven times as much little-cigar business as the aggregate 
of all the independents, the Liggett & JMyers Co. over six times as 
much, and the American Tobacco Co. nearly twice as much. 

(b) In considering the propriety of di\dding the little-cigar business 
of the trust among a greater number of corporations, it should be 
remembered that this business, though largely developed by the 
trust, rests upon a combination of distinct business concerns; that 
the little cigars are of several distinct quahties, and that, according 
to the latest information available, the trust now does its little-cigar 
manufacturing in seven separate factories. 

snutf. 

E. The snuff-tobacco business of the trust is divided by the plan 
into three parts. It should be divided among six separate concerns. 

(a) The American Snuff Co. would, under the plan, have 35.55 
per cent in value of the whole snuff business of the country, the 
George W. Helme Co. 28.95 P^^ cent, and the Weyman & Bruton 
Co. 27.68 per cent, as against 7.82 per cent now controlled by aU 
the independents together. That is, the American Snuff Co. would 
have a snuff business more than four times as large as the aggregate 
snuff business of all the independents, and the George W. Helm ^ Co. 
and the Weyman & Bruton - Co. a snuff business each more than 
three times as large as the aggregate business of all the independents. 

(b) In considering the propriety of the division of the snuff busi- 
ness of the trust among a larger number of concerns, it should be 
borne in mind that the present snuff business of the trust is the result 
of combiniQg 29 separate concerns, and that, according to the latest 
inform^ation available, it now manufactures snuff in more than three 
factories. 

^ Thus in original. Should be Helme. — Ed. 

^Thus in original. Should be Weyman-Bruton. — Ed. 



Efficacy of Dissolution 491 



LICORICE PASTE. 

F. The licorice-paste business of the trust is divided, under the 
plan, into two parts. It should be divided among at least four 
separate concerns. 

The trust, through the MacAndrews & Forbes Co., now controls 
90 per cent of the licorice-paste business of the country. There is 
but one independent manufacturer, and until the commencement 
of this suit that manufacturer conducted the business under an 
agreement in combination with the trust. 

(a) Under the plan the trust's licorice-paste business is to be di- 
vided among two concerns, so that the MacAndrews & Forbes Co. 
will retain about 60 per cent of the whole licorice paste business of 
the country, and the J. S. Young Co. have about 30 per cent. Thus 
the MacAndrews & Forbes Co. will have a licorice-paste business six 
times as large as that of the independent manufacturer, and the 
J. S. Young Co. a business nearly three times as large. 

(b) In considering the propriety of dividing the licorice-paste 
business among a larger number of concerns, it should be borne in 
mind that the present Ucorice-paste business of the trust is the result 
of combining six separate concerns. 

(c) The control by the trust of the licorice-paste business gave it 
control of the chewing-tobacco business, as chewing plug can not 
be made without licorice; and its control of the licorice-paste business 
of the whole country is fortified by its control of the raw material, 
licorice root. The plan makes no provision for breaking the trust's 
monopoly of licorice root. 

(d) The plan also omits to provide for a cancellation of those 
covenants by which those whose Hcorice-paste business was ab- 
sorbed by the trust are precluded from reentering the business. 

TENT POLL 

G. The tin-foil business of the trust is divided by the plan into 
two parts. It should be divided among at least five separate con- 
cerns. 

(a) The exact percentage of the tin-foil business of the country 
controlled by the trust is not stated in the petition. It is, however, 
so large a percentage of the whole tin-foil business of the country 
that the division of the trust's tin-foil business between the Conley 
Tin Foil Co. and the Johnson Tin Foil & Metal Co., as proposed, 
would still leave the Conley Tin Foil Co. in a dominant position. 



492 Industrial Combinations and Trusts 

(b) The plan also omits to provide for a cancellation of those 
covenants by which those whose tin-foil business was absorbed by 
the trust are precluded from reentering the business. 

"completely equlpped" concerns 

Third. The plan provides that the three companies among which 
all the manufacturing properties of the trust are divided shall be 
''each completely equipped for the conduct of a large tobacco busi- 
ness." No independent concern is now "completely equipped for 
the conduct of a large tobacco business," or indeed completely 
equipped to do any tobacco business covering all the main branches 
of the tobacco trade. No plan to restore competition can be effective 
which does not include as an essential condition that the several 
concerns which are to carry forward the business of the trust shall 
be, at the outset, of a character similar to that of the remaining in- 
dependent concerns. It follows that any corporation taking over 
a part of the plug-tobacco business or smoking-tobacco business of 
the trust shall not take over any of the cigarette or cigar business; 
that a corporation taking over a part of its cigarette business shall 
not take over any of its smoking-tobacco business, plug- tobacco 
business, or cigar business; and that a corporation taking over any 
part of the cigar business shall not take over any of its smoking- 
tobacco business, plug-tobacco business, or cigarette business. 

(a) Under the proposed plan the American Tobacco Co. would 
have a cigarette department with 33.15 per cent in value of the 
whole cigarette business of the country, a smoking-tobacco depart- 
ment with 40.53 per cent of the whole smoking-tobacco business of 
the country, a plug- tobacco department with 22.98 per cent of the 
whole plug-tobacco business of the country, a fine-cut-tobacco 
department with 13.52 per cent of the whole fine-cut- tobacco busi- 
ness of the country, a cigar department with 8.90 per cent of the 
whole cigar business of the country, and a little-cigar department 
with 13.41 per cent of the whole little-cigar business of the country. 
In the Liggett & Meyers Co. the percentages would be 21.02 per 
cent in the cigarette department, 16.47 P^^ cent in the smoking- 
tobacco department, 37.84 per cent in the plug- tobacco department, 
36.26 per cent in the fine-cut-tobacco department, and 38.69 per 
cent in the Httle-cigar department. The Lorillard Co. would have 
a cigarette department with 26.02 per cent, a smoking-tobacco 
department with 18.88 per cent, a plug-tobacco department with 
4.64 per cent, a fine-cut-tobacco department with 29.57 P^^ cent, 



Efficacy of Dissolution 493 

a cigar department with 2.88 per cent, and a little-cigar department 
with 40.95 per cent. 

(b) The impossibility of fair competition between the independ- 
ents and these four companies, into which it is proposed to divide 
the manufacturing business of the trust, is due to the cumulative 
effect of three distinct advantages vv^hich the trust has secured 
through its illegal combination: 

1. The large percentage of the whole business in any department 
which each would have as compared with the independents. 

2. The fact that its business extends over all departments of the 
tobacco trade. 

3. The fact that the trust holds and is proposing to distribute 
among the three companies certain brands which are practically 
indispensable to the successful conduct of business by any jobber or 
retailer of tobacco. 

Each company would therefore be enabled, by means of these 
"indispensable brands," to largely compel dealers to give prefer- 
ence to its other products over those of the existing independents. 
It would also, by use of the huge profits derived from those indis- 
pensable brands, be enabled to crush these independents as com- 
petitors of other departments of its business. 

(c) In considering the propriety of limiting the number of de- 
partments of the tobacco business of the trust which should be 
allotted under the plan to any single company, it should be noted 
that prior to the trust's illegal operations no one concern was so 
"completely equipped" and that the present business of the trust 
is the result of combining and absorbing illegally at least 250 sep- 
arate concerns; that furthermore, even to-day, the trust manu- 
factures its products in at least 100 different factories; that in 
none of these does it now manufacture all of the several tobacco 
products which it is proposed to handle through each of these " com- 
pletely equipped companies"; and that also in the selling of its 
product it employs separate salesmen for different classes of tobacco 
products. 

RESTRAINTS ON UNFAIR COMPETITION. 

Fourth. The plan contains no provision under which the several 
corporations which are to carry forward the manufacturing busi- 
ness of the trust will be enjoined from practicing those methods of 
unfair competition by means of which the trust has in the past 



494 Industrial Combinations and Trusts 

overcome its competitors. It is clear that for a limited period the 
independents should have more protection than would ordinarily 
be necessary in trade where one concern has not succeeded in ille- 
gally dominating the trade. For this reason it is not sufficient that 
the- corporations carrying forward the business of the trust be merely 
enjoined from a continuation of the illegal practices pursued by 
the trust; they should also be prohibited for a limited period — say, 
five years, and such further time, if any, as the court may here- 
after order — against other practices not necessarily illegal, but 
which if resorted to at the outset would tend to stifle competition. 
The plan should therefore include, among other acts to be pro- 
hibited for such Hmited period, the following: 

(A) Each corporation which is to carry forward any part of the 
manufacturing business of the trust should be restrained — 

(i) From acquiring or holding stock or other interest in, or under- 
taking to exercise any control over, or making loans or otherwise 
extending credit to, any other corporation carrying forward any 
part of the business of the trust, except as hereinafter provided. 

(2) From having any person act as one of its officers or directors 
who is also an officer or director in any of the other corporations 
carrying forward any other part of the business of the trust, except 
as hereinafter provided. 

(3) From combining in any way with any other corporation 
carrying forward any part of the business of the trust, either in 
purchasing raw material or supplies or in selling manufactured 
products or otherwise, or having any joint or common agents or 
enterprises in connection with the purchase of raw materials or 
supplies or the sale of manufactured products, or otherwise. 

(4) From making any agreement or arrangement of any kind 
with any corporation carrying forward any part of the business of 
the trust under which trade is apportioned in respect either to 
customers or localities. 

(5) From doing business directly or indirectly under any name 
other than its own corporate name. 

(6) From holding stock in or being otherwise interested in any 
other corporation, except as hereinafter provided. 

(7) From espionage on the business of any competitor either 
through bribery of any agent or employee of such competitor, or 
obtaining information from any United States revenue official. 

(8) From giving away, selling at or below the cost of manufac- 
ture and distribution, any of its products, or adopting any other 



Efficacy of Dissolution 495 

method of cutthroat competition for the purpose of destroying or 
of acquiring the business or trade of a competitor. 

(9) From refusing to sell to any jobber any brand of snuff or 
cigarettes or smoking or chewing tobacco manufactured by it 
which is indispensable in the particular market. It should also be 
restrained from giving any rebates, allowances, or other special 
inducements to those who use its goods exclusively or give prefer- 
ence to them over the goods of competitors. 

(10) No corporation carrying forward any part of the manufac- 
turing business of the trust should be allowed to hold any part of 
the stock of or any other interest in any concern engaged in job- 
bing tobacco products; but it should be permitted, except as above 
stated, to own the stock of another corporation organized to carry 
on any part of its permissible business, provided such other cor- 
poration shall have a corporate name, and the business is done under 
a name, substantially identical with its own. 

(B) Each of the 29 individual defendants, and also the other 
stockholders among whom distribution of the property of the trust 
is made, should be restrained from doing, or aiding in the doing, 
of any acts which the corporations are to be prohibited from doing 
as above set forth. 

(C) Every independent or other person interested should in the 
event of any alleged violation of the injunction have liberty to 
apply to the court for protection and such action as may appear to 
be appropriate. 

UNITED CIGAR STORES. 

Fifth. The plan provides for leaving intact the United Cigar 
Stores Co. and merely distributing among the common-stock 
holders of the American Tobacco Co. its stock holdings in the United 
Cigar Stores Co. No plan can be effective to restore competition 
which does not provide for dividing the businesses and property 
of the United Cigar Stores Co. among many separate concerns 
owned by absolutely distinct groups of individuals. These busi- 
nesses should be divided, preferably among at least 10 separate cor- 
porations, and no one corporation should be given a predominant 
power in any locality. 

(a) The power acquired by the United Cigars ^ Stores Co. through 
the illegal operations of the trust is so great that its continued 
existence would render effective competition improbable, even if, 
^ Thus in original. — Ed. 



496 Industrial Combinations and Trusts 

as contended above, the manufacturing properties were divided 
into separate segments owned each by distinct groups of individ- 
uals. The distribution of the United Cigar Stores Co.'s stock 
among the stockholders of the American Tobacco Co. would in 
itself create a bond of union among the several segments sought to 
be kept separate and distinct each from the other. In considering 
the disposition to be made of the United Cigar Stores Co., the court 
should be guided by the actual commercial situation, to be ascer- 
tained by an inquiry into the actual facts. The United Cigar 
Stores Co., developed through the illegal practices of the trust, 
possesses to-day a capital and a peculiar position which makes it 
so potent in the tobacco business as to be a menace ahke to inde- 
pendent manufacturers and to independent retailers. Its division 
is a commercial necessity. 

(b) When divided each segment of the United Cigar Stores Co. 
should be owned by a different group of individuals; and like pro- 
vision should be made as in the case of the segments of the manu- 
facturing properties of the trust — that for a limited period, say, 
five years, none of the original stockholders should be allowed to 
acquire an interest in any of the other segments into which the 
United Cigar Stores Co. is divided. 

(c) Specific provision should also be made to prevent, as in the 
case of the manufacturing companies, any combination between the 
different corporations formed to carry forward the United Cigar 
Stores Co. business. They should among other things be expressly 
prevented from combining in any way in purchasing or in selling 
tobacco products or in purchasing or leasing real estate, and 
specifically from issuing interchangeable coupons. 

II. 

Other Important Defects. 

In addition to the five fundamental objections to the plan set 
forth above, there exist other important objections, among which 
are the following: 

THE BRITISH AMERICAN CO. 

First. Under the plan the covenant restricting the British Amer- 
ican Tobacco Co. from competing within the United States is to be 
abrogated; but no provision is made for terminating the practical 
monopoly acquired by the British American Co. in the purchase 



EmcACY OF Dissolution 497 

and maniifacture within the United States for export of certain 
kinds of tobacco leaf and the manufacture of cigarettes within the 
United States for export. 

The leaf-tobacco business of the British American Co. should be 
divided among four concerns, taking over, respectively, the busi- 
nesses heretofore done by the David Dunlop Co., T. C. Williams 
Co., Cameron & Cameron, and William Cameron & Bros. 

The export cigarette business should be taken by two companies, 
assuming, respectively, the business done at the Richmond and the 
Durham plants. The separate concerns so created should be sub- 
ject to prohibitions similar to those suggested above for the other 
segments of the trust, and the provisions should be made specific- 
ally to encourage competition between the cigarette plants now 
controlled by the British American Co. and those controlled by the 
American Tobacco Co. 

COMPETITION IN BUYING TOBACCO. 

Second. The plan fails to provide adequately for preventing a 
restraint of competition in the purchase of leaf tobacco through 
some combination between the Imperial Co., the British American 
Co., and the segments into which the American Tobacco Co. may 
be divided. There should be a specific prohibition against the 
British companies joining with each other or with any of the seg- 
ments of the American Tobacco Co. in the purchase of leaf tobacco 
or in employing any common agent for that purpose. 

THE CIGAR BUSINESS. 

Third. Under the plan the American Tobacco Co. is to retain in 
its treasury the stock of the American Cigar Co. now held by it. 
The American Cigar Co. should be separated absolutely from every 
other corporation which carries forward any part of the manufac- 
turing business of the trust in other tobacco products. All the Amer- 
ican Cigar Co. stock held by the trust should be transferred to 
some group of individuals entirely distinct from those who hold the 
stock in the corporations which take over the smoking- tobacco, 
plug-tobacco, snuff, and cigarette business of the trust. 

Furthermore the manufacturing business of the American Cigar 
Co. should be divided among at least four separate corporations, 
each owned by a distinct group of stockholders; and each of these 
corporations should be subject to prohibitions substantially sim- 



498 Industrial Combinations and Trusts 

ilar to those above set forth in respect to the other corporations 
carrying forward parts of the business of the trust. 

Leave is respectfully reserved to submit additional objections 
to the plan, as well as argument in support of all objections in ac- 
cordance with said order entered October 18, 191 1. 

Louis D. Brandeis, 
Felix H. Levy, 
Counsel for Remonstrants. 
New York, October 25, igii. 



Exhibit 7 

argument of FELIX H. LEVY IN SUPPORT OF THE OBJECTIONS FILED 
HEREIN BY THE NATIONAL CIGAR LEAF TOBACCO ASSOCIATION, THE 
CIGAR manufacturers' ASSOCIATION OF AMERICA, AND THE IN- 
DEPENDENT TOBACCO salesmen's ASSOCIATION TO THE PLAN OF 
DISINTEGRATION FILED HEREIN BY THE AMERICAN TOBACCO CO. 
AND OTHERS, DEFENDANTS ^ 

I. The plan submitted by the tobacco combination does not, in any 
substantial sense, comply with the requirements of the opinion of 
the United States Supreme Court or of the decree rendered herein. 

(a) At the outset it will be useful for a clear imderstanding of the 
requirements of the opinion of the Supreme Court to point out a few 
of the sahent features of that opinion as indicating the character of 
dissolution contemplated by that court. 

It is a significant fact that the court deemed it imnecessary to 
take into consideration any of the numerous facts in the record which 
were disputed by the defendants. The court said (p. 155): 

a* * * j^ Q^j- opinion the case can be disposed of by consid- 
ering only those facts which are indisputable and by applying to the 
inferences properly deducible from such facts the meaning and effect 
of the law as expounded in accordance with the previous decisions 
of this court," 
and again (p. 157), 

u* * * we propose only to deal with facts which are not in con- 
troversy." 

Despite the fact that the court limited itself to the consideration of 

^Hearing before the Committee on Interstate Commerce, United States 
Senate, 62nd Congress, 2nd Sess., 1911-1912, pp. 340-50. 



Efficacy of Dissolution 499 

the undisputed facts only the court gave judgment of dissolution and 
disintegration of a most drastic character. 

(b) The court recognized the fact that a substantial control of the 
combination was exercised by a very small number of its stockholders. 
At page 174 the court said: 

"Through the method of distribution of the stock of the new com- 
pany, in exchange for shares in the old American and in the Con- 
tinental Co., it resulted that the same six men in control of the 
combination through the Consolidated Tobacco Co. continued that 
control by ownership of stock in the merged or new American To- 
bacco Co. * * * The record indisputably discloses that after this 
merger the same methods which were used from the beginning con- 
tinued to be employed." 

And it also recognized the necessity of a complete divesting of stock 
ownership by one part of the combination in other parts of the com- 
bination, as is thus shown (p. 176): 

"Thus, even if the ownership of stock by the American Tobacco 
Co. in the accessory and subsidiary companies and the ownership of 
stock in any of those companies among themselves were held, as 
was decided in United States against Standard Oil Co., to be a viola- 
tion of the act, and all relations resulting from such stock ownership 
were therefore set aside, the question would yet remain whether the 
principal defendant, the American Tobacco Co., and the five acces- 
sory defendants, even when divested of their stock ownership in other 
corporations, by virtue of the power which they would continue to 
possess, even although thus stripped, would amount to a violation of 
both the first and second sections of the act. * * * Still further, 
the question would yet remain whether particular corporations which, 
when bereft of the power which they possessed, as resulting from 
stock ownership, although they were not inherently possessed of a 
sufficient residuum of power to cause them to be in and of themselves 
either a restraint of trade or a monopolization or an attempt to 
monopolize, should nevertheless be restrained because of their in- 
timate connection and association with other corporations found to 
be within the prohibitions of the act." 



(e) The court clearly recognized the necessity of a separation of 
stock control, as is thus shown (p. 185): 

"Looking at the situation as we have hitherto pointed it out, it in- 



500 Industrial Combinations and Trusts 

volves difficulties in the application of remedies greater than have 
been presented by any case involving the antitrust act which has 
been hitherto considered by this court: First, because in this case it 
is obvious that a mere decree forbidding stock ownership by one part 
of the combination in another part or entity thereof would afford no 
adequate measure of relief, since different ingredients of the combina- 
tion would remain unaffected, and by the very nature and character 
of their organization would be able to continue the wrongful situation, 
which it is our duty to destroy. * * * Third, because the 
methods devised by which the various essential elements to the suc- 
cessful operation of the tobacco business from any particular aspect 
have been so separated under various subordinate combinations, yet 
so unified by way of the control worked out by the scheme here 
condemned, are so involved that any specific form or relief 
which we might now order in substance and effect might operate 
really to injure the pubhc and, it may be, to perpetuate the 
wrong." 

It is thus made obvious that one of the principal features com- 
prised in the objections filed by the remonstrants — that which ob- 
jects to stock ownership by the stockholders of any one of the seg- 
ments into which the combination shall be divided in any of the other 
segments — ^was contemplated by the court, and, apparently, the only 
objection thereto was that such prohibition would not go far enough. 
To emphasize this, we repeat the language of the court: 

" * * * In this case it is obvious that a mere decree forbidding 
stock ownership by one part of the combination in another part, or 
entity thereof, would afford no adequate measure of relief." 

There is here no suggestion of the illegality of such a prohibition. 
The court says only that it will not go far enough. 

The danger of a renewal of an unified control through such stock 
ownership is clearly apprehended by the court as shown by the words 
used above, which we here again quote (p. i86): 

" * * * Because the methods devised by which the various es- 
sential elements to the successful operation of the tobacco business 
from any particular aspect have been so separated imder various 
subordinate combinations, yet so unified by way of the control 
worked out by the scheme here condemned," etc. 

(/) It seems obvious that the court had in mind the probability 
that a receivership or an injunction against the movement in inter- 
state commerce of the products of the combination would be neces- 
sary on account of the complexity of the situation created by the 



Efficacy of Dissolution 501 

conspirators who controlled the combination. The court makes 
clear the possible necessity of such a procedure, and its unwillingness 
to resort thereto forthwith, without first giving the controllers of the 
combination an opportunity to formulate and present to this court a 
plan of dissolution and disintegration which would honestly conform 
with the requirements of the statute. The court said (p. 187): 

''But, having regard to the principles which we have said must 
control our action, we do not think we can now direct the immediate 
application of either of these remedies. We so consider as to the first 
because, in view of the extent of the combination, the vast field which 
it covers, the all-embracing character of its activities concerning to- 
bacco and its products, to at once stay the movement in interstate 
commerce of the products which the combination or its co-operating 
forces produce or control might inflict infinite injury upon the pub- 
lic," etc. * * * ''The second because the extensive power which 
would result from at once resorting to a receivership might not only 
do grievous injury to the public," etc. 

It thus appears that instead of resorting forthwith to either of these 
drastic remedies, the court gave to the defendants the opportunity 
of working out some plan of dissolution and disintegration which 
would conform to the requirements of the decree and adequately 
meet the situation; and failing so to do, resort to one or the other or 
both of these remedies would become necessary. The insistence upon 
a diversity of stock ownership is based not upon any claim of the 
right of this court to enforce such condition upon the stockholders 
against their will, but is based upon the contention that unless the 
stockholders of their own free will and accord present to the court, 
as a part of their plan of dissolution and disintegration, a provision 
preventing mutuality of stock ownership, the defendants will not 
have met the requirements of the opportunity thus given to them by 
the Supreme Court. In other words, the Supreme Court has, if we 
may be permitted to paraphrase its language, said in effect to these 
defendants: 

"We hesitate to appoint forthwith a receiver and to issue an in- 
junction against interstate traffic in your products because of the 
injury that will thereby be occasioned to the public. We therefore 
give you an opportunity of working out and presenting to the circuit 
court a plan of dissolution and disintegration which will honestly 
re-create conditions of free and unrestricted competition. If you are 
unable or unwilling to do this, there will be no alternative open except 
the appointment of a receiver or the issuance of such an injunction. 



502 Industrial Combinations and Trusts 

It will therefore be necessary for you to devise a plan to which your 
security holders will of their own accord consent whereby the true 
intent and purpose of our decree will be carried out. If such a plan 
shall necessitate your security holders placing themselves under a 
prohibition against mutual or joint-stock ownership of the various 
segments into which your combination shall be divided, then that 
must be done. While it may be that a court can not compel you to 
do this, nevertheless unless you consent, no effective restoration of 
real competitive conditions can be brought about and accordingly it 
would become necessary for the court to appoint a receiver or to issue 
an injimction." 

II. The court has power to enjoin the purchase, directly or indirectly, 
by the 29 individual defendants and their confederates, of the stock 
of the constituent companies. 

We protest against any method of distribution by which the stock 
of the constituent companies will be placed in the hands of the 
common-stock holders of the American Tobacco Co. The American 
Tobacco Co. must, it is true, dispose of its holdings in the shares of 
the constituent companies, but it should not be allowed to distribute 
those shares among its own common-stock holders. On the contrary, 
an injunction should issue restraining the common-stock holders of 
the American Tobacco Co. from acquiring those shares. Such an 
injunction involves no violation of any legal principle. It merely 
enjoins the perpetuation of a criminal conspiracy imder another 
form. 

An analysis of the situation must, we think, sustain the correctness 
of this view. These 29 individual defendants combined with the 
American Tobacco Co., or combined with each other, by and through 
the corporate form of the American Tobacco Co., to monopoHze 
trade and suppress competition by centralizing under one control 
the business of previous diverse units. To effectuate that end they 
adopted the plan of putting the stock of the units into the ownership 
of the dominant corporation. They might have adopted other 
methods, and if the end which they had in view had been the same, 
the illegality would have been in no way cured. In other words, if 
these 29 defendants conspired to monopolize trade, and adopted the 
expedient of putting the ownership of the stock of the constituent 
imits in their own names, they would still have been parties to a 
criminal conspiracy. Acting individually, but not in concert, each 



Efficacy of Dissolution 503 

one of them, it may be, might have acquired whatever shares he 
pleased. When, however, by concerted action, they set about to 
monopolize a great industry, they would not have escaped the pen- 
alties of the law if they had put the title to the shares in their in- 
dividual names. The purpose and intent of using the ownership ac- 
quired through this joint action in order to crush competition and to 
establish monopoly, would have vitiated their acts. 

The Supreme Court of the United States said in Swift & Co. v. 
U.S. (196 U.S., 375): 

"Even if the separate elements of such a scheme are lawful, when 
they are bound together by a common intent as parts of an unlawful 
scheme to monopolize interstate commerce, the plan may make the 
parts unlawful." 

The plan now proposed attempts, therefore, to perpetuate a crim- 
inal conspiracy. It seeks to cure a great evil and a great wrong by 
substituting another. The 29 individual defendants, convicted of 
conspiracy, are making reparation, not by yielding up their collective 
control, but by taking in their own names the title which for conven- 
ience they had vested in the company. They would have violated 
the law if, with concert of action, they had taken the title in their 
own names when the combination was first formed. They surely do 
not bring themselves within the law by doing something to-day 
which, if they had done at the outset, would have been denounced as 
a crime. 

It is said, however, in defense of the plan, that the control will be 
diluted because voting rights are now to be given to the preferred- 
stock holders. We have no list of the present preferred-stock holders. 
We have no doubt that if the list is scrutinized, and if the individual 
defendants are compelled to submit to an examination under oath 
with reference thereto, it will be found that the preferred stock is 
held in large part by the conspirators and by their agents and rela- 
tives. We urge that before the court shall accept the word of an ad- 
judged wrongdoer that it has reformed itself altogether, there be a 
rigid investigation, under the sanction of an oath, of these professions 
of reformed innocence. 

No plan should be approved imless the common-stock holders are 
prohibited from obtaining or retaining control. Control, moreover, 
may be exercised by something less than a majority. The cohesive 
power of large stockholders representing 30 or 40 per cent may out- 
match the scattered forces of unorganized individuals. The percent- 
ages of the voting stock held by the individual defendants in the 



504 Industrial Combinations and Trusts 

14 corporations into which they propose to divide the existing com- 
bination are as follows: 

Per cent. 

American Tobacco Co.- 35-i6 

Liggett & Myers Co. 40.76 

P. Lorillard Co. 40.76 

American Snuff Co. 38.65 

Geo. W. Helme Co. 28.49 

Weyman & Burton Co. 28.49 

Conley Foil Co. 33.88 

Johnston Tin Foil Co. 33-73 

MacAndrews & Forbes Co. 39-77 

J. S. Young Co. 43.87 

R. J. Reynolds Tobacco Co. 37-53 

United Cigar Stores Co. 37-6s 

British- American Tobacco Co. 34.46 

Porto Rican- American Tobacco Co. 45.31 

It is apparent from these figures that the individual defendants will, 
in the absence of united action by the majority of the stockholders 
of any of the companies, control each and all of the said companies. 
Especially will this be so when it is borne in mind that the individual 
defendants will start out in actual control of each and every one of 
such corporations, by reason of the fact that they will, upon the or- 
ganization of these corporations, undoubtedly control the nomina- 
tion and election of the directors and officers and through them of 
each and every employee of the said corporations. 

Thus to restrain the individual defendants and those who, while 
not joined as defendants are so related to them that they must have 
been animated, and will be animated, by a common purpose is not an 
arbitrary judicial fiat. It is not to cast aside settled legal principles 
and single out special individuals to bear some special burden; the 
/underlying principle is this: These men have combined and conspired 
in violation of law, and the injunction restraining them from acquir- 
ing the shares merely restrains them from giving effect to and per- 
petuating the same combination and conspiracy under another form. 
They might have been restrained from these acts when the monopoly 
was first planned. A long career of oppression and the exercise of 
monopolistic power has given them no broader license. 



Efficacy of Dissolution 505 

VII. The proposed plan is significant in respect of the concerns which 
are not to be parts of the three great corporations, namely, the 
American Tobacco Co. (new), Liggett & Myers Co., and the P. 
Lorillard Co. 

(a) The American Tobacco Co. is to divest itself of its interest in 
the two tin-foil companies, but that interest (which is 60 per cent) is 
to be distributed to its common-stock holders as a dividend. 

(b) The American Tobacco Co. is to divest itself of its interest in 
the R. J. Reynolds Tobacco Co. (more than two- thirds interest), but 
that interest is to be distributed to its common-stock holders as a 
dividend. This company is a very large combination in itself, con- 
trolling several branches and subcompanies, and has a practical 
monopoly of the flat-plug business of the South. 

(c) It will also divest itself of its interest in the American Snuff 
Co. (about 43 per cent), but that interest is to be distributed to its 
common-stock holders as a dividend. 

(d) It will also divest itself of its interest (about 75 per cent) in the 
MacAndrews & Forbes Co., but this interest is to be distributed to its 
common-stock holders as a dividend. 

(e) It will also divest itself of its interest (about two-thirds) in the 
British- American Tobacco Co., but that interest will be distributed 
to its common-stock holders as a dividend. 

(/) It will also divest itself of its interest in the United Cigar 
Stores Co. (about two- thirds), but that interest will be distributed to 
its common-stock holders as a dividend. 

It will therefore result that each of these six constituent parts of 
the present combination will continue to be controlled by the same 
"small number of individuals who own a majority of the common 
stock" of the American Tobacco Co. (See opinion of the United 
States Supreme Court, p. 175.) 

The viciousness of such an arrangement is made manifest more 
strikingly in the case of the United Cigar Stores Co. than in the 
case of the other five companies thus sought to be separated. The 
United Cigar Stores Co. has been the most pov/erful agency of 
the combination in obtaining the control of the tobacco industry. 
Through the hundreds of stores which that company operates, 
and by virtue of the special trade advantages given to it by its 
owner, the American Tobacco Co., and by the exercise of the 
most ruthless and cruel practices in driving out retail opposition and 
obstructing the avenues of distribution on the part of independent 



5o6 Industrial Combinations and Trusts 

manufacturers, this company has proven the most effectual of all 
the barriers to the entry of others into the tobacco trade. If the 
mild expedient of merely separating this company from the com- 
bination but of leaving its control in the hands of the same men who 
have heretofore controlled the combination, if the rose-water 
remedy of gently setting aside this vast agency of destruction from 
its former control by the combination and placing it in the hands 
of the same men who control that combination, is to be adopted, 
it is no exaggeration to say that, in this respect at least, the decree 
of the Supreme Court of the United States might as well have been 
a blank piece of paper. 

VIII. It is obvious that the real purpose of the defendants in the 
preparation of their plan is to retain to themselves the "monop- 
oly" value which the combination has acquired. 

We repeat the statement quoted above from the opinion of the 
Supreme Court (p. 182): 

"By the ever-present manifestation which is exhibited of a 
conscious wrongdoing by the form in which the various transactions 
were embodied from the beginning, ever changing but ever in 
substance the same. Now the organization of a new company, 
now the control exerted by the taking of stock in one or another 
or in several, so as to obscure the result actually attained, never- 
theless uniform in their manifestations of the purpose to restrain 
others and to monopolize and retain power in the hands of the 
few who, it would seem, from the beginning contemplated the 
mastery of the trade which practically followed." 

The plan now proposed comes squarely within this description. 
It leaves unimpaired the opportunity for the exercise of all the 
manifold devices to which the managers of this combination have 
heretofore resorted for the purpose of retaining "power in the hands 
of the few who, it would seem, from the beginning, contemplated 
the mastery of the trade which practically followed. " 

We submit that there is every probability that if these individual 
defendants be allowed to retain control of the constituent companies 
(as well as those named above as of the three or four great corpora- 
tions into which they propose to divide the rest of the business of 
the combination), they will again resort to the same devices and 
practices as they have in the past for the purpose of using such con- 
trol to retain and extend their mastery and dominion over the 
entire tobacco industry. 



Efficacy of Dissolution 507 

The enormous value which has been acquired by the combina- 
tion through its monopoHstic practices and the great inducement 
thereby held out to these defendants in their effort to retain the 
same is shown in Exhibit C (p. 41) of their proposed plan. This 
exhibit shows that as to the proposed Liggett & Myers Co. the value 
of the tangible assets is stated as about $30,000,000 and the value 
of the "trade-marks and brands" as about $36,000,000. The 
corresponding figures as to the proposed P. Lorillard Co. are, as 
to the tangible assets, about $28,000,000 and as to "trade-marks 
and brands" about $19,000,000. Although we have been denied 
access to the data upon which these figures are based, we feel 
justified in the assumption that a very large part of the great 
value assigned to "trade-marks and brands" is represented by 
"good- will value," which must in turn have as a large element 
the "monopoly " or " merger " value. This fact is further shown by 
a scrutiny of the said exhibit, from which it will appear that as to 
each of the two new companies the earnings over and above the 
amounts necessary to pay interest on all the bonds and the dividends 
on the preferred stock, and which will be available as dividends 
on the common stock, will be over 20 per cent of the amount of the 
common stock. The inducement plainly exists for these defendants 
to retain the control of all these companies. If this control is 
exercised in the same way as they exercised their control of the 
combination in the past, it can only result in a retention and exten- 
sion of this "monopoly" value. 

Exhibit 8 

claim of the independents in regard to the distribution of 
tobacco and brands among the tobacco companies after 
dissolution ^ 

That the division of the American Tobacco Co. properties as 
between the American Tobacco Co., Liggett & Myers Tobacco Co., 
the P. Lorillard Co., and R. J. Reynolds Tobacco Co., is a con- 
tinuation of the illegal combination, is discussed in Part II above. 
That the percentages of the whole business of the country in the 
several branches of the tobacco trade alloted to each of these 

^ Hearings before the Committee on Interstate Commerce on the Control of 
Corporations, Persons and Individuals engaged in Interstate Commerce, 
United States Senate, 62nd Congress, 2nd Sess., 1911-1912, pp. 325-329. Cf. 
Exhibits 3 and 4 above. 



5o8 Industrial Combinations and Trusts 

four companies is such as to preclude the possibiHty of fair com- 
petition as between them and the existing independents is set forth 
in our objections filed October 25 (pp. 4-10). A detailed examina- 
tion of the trade conditions will disclose, in addition, that the 
brands and business are so distributed under the plan as to prevent, 
in large measure, competition among the four companies. 

The facts necessary to bring this matter fully before the court 
do not appear in the present record. They can not be adequately 
presented without the examination of witnesses familiar with 
trade conditions, and also without an opportunity of submitting 
to the court certain data in regard to the defendants' business 
included among the papers to which these remonstrants sought 
access by their petition filed October 18, 191 1; and access to which 
was denied by the court. But the following facts not disclosed by 
the defendants in their petition filed October 16, 191 1, will, we 
believe, suffice to show the court that the proposed division of 
the trust's properties would leave each of the four companies so 
dominant in important departments and markets that, through 
them, the existing monopoly would be practically continued. 

First. — The leaf-tobacco trade. 

Defendants' plan. Exhibit E, sets out the average production 
of five leading types of tobacco, together with the estimated pur- 
chases of each type by the American Tobacco Co., Liggett & Myers 
Co., P. Lorillard Co., R. J. Reynolds Tobacco Co., and the British- 
American Tobacco Co. From the face of those figures it would 
appear as if the plan had provided for reasonable competition as 
between these companies for the various t}^es of tobacco. Facts 
not disclosed by the plan will show a very different result. 

I. Burley tobacco. — Defendants' plan, Exhibit E, sets forth that 
of the total average crop of burley (200,000,000 pounds) the Ameri- 
can Tobacco Co. would purchase 41,969,955; Liggett & Myers 
Tobacco Co., 69,163,946; P. Lorillard Co., 24,074,643; and R. J. 
Reynolds Tobacco Co., 5,000,000 pounds, as if these four companies 
would be competitors for this aggregate of 130,000,000 pounds. 
As a matter of fact, the burley type of tobacco comprises 40 difi'erent 
grades, of which the most important are the following: Medium red 
burley leaf, of which the average crop is about 60,000,000 pounds; 
common red burley, leaf and tips, of which the average crop is about 
40,000,000 pounds; trashes (of various qualities), of which the pro- 
duction is about 50,000,000 pounds; fine bright leaf and fine white 



Efficacy of Dissolution 509 

burley, of which the production is from 10,000,000 to 15,000,000 
pounds. These various grades vary in quaUty and quantity in al- 
most every crop, according to the season. The values of the said 
classes in a single year are widely different. The average price per 
pound of the medium red burley would be, perhaps, 12 to 15 cents; 
of common red, 7 to 10 cents; of trashes, 7 to 123^ cents; of bright 
leaf and fine white burley, 16 to 20 cents. 

The distribution of the brands of plug and of smoking tobacco 
under the defendants' plan is such that the American Tobacco Co., 
the Liggett & Myers Tobacco Co., the P. Lorillard Co., and the 
R. J. Reynolds Tobacco Co. would not, to any large extent, be 
competitors for burley tobacco, but would each be practically a 
dominating purchaser of different grades of burley; for instance: 

(a) Medium red leaf burley: The Liggett & Myers Tobacco Co. 
would control the medium red leaf burley market as maker of the 
''Star" and "Horsehoe" brands of chewing tobacco, by far the 
leading chewing tobacco brands in the country, for they would 
be the principal purchasers of medium red leaf burley. Neither 
the American Tobacco Co. nor the P. Lorillard Co. nor the R. J. 
Reynolds Tobacco Co. requires any appreciable quantity of this 
grade of burley. 

(b) Common red burley: The American Tobacco Co. would 
control the common red burley market as maker of the following 
brands of plug chewing tobacco: "American Navy," "Square 
Deal," " Standard Navy," " Corker," and "Town Talk." Neither 
the Liggett & Myers Tobacco Co. nor the P. Lorillard Co. or ^ the 
R. J. Reynolds Tobacco Co. requires any appreciable quantity of 
this common red burley for the brands assigned to them in the plan. 
Therefore the American Tobacco Co. would control the common 
red burley market. 

(c) Burley trashes: The P. Lorillard Co. would dominate the 
market for burley trashes as the maker of the "Union Leader," 
" Sensation," and " Just Suits" brands of smoking tobacco. Neither 
the American Tobacco Co., Liggett & Myers Tobacco Co., or 1 
the R. J. Reynolds Tobacco Co. requires any appreciable quantity 
of that grade of burley. 

(d) Fine white burley: The American Tobacco Co., as maker of 
the "Lucky Strike," "Tuxedo," and "Old EngHsh" brands of 
smoking tobacco, would require the greater part of the fine white 
burley. Liggett & Myers Tobacco Co. would require a small 

1 1'hus in original. — Ed. 



5IO IXDUSTRIAL COMBINATIONS ANTD TRUSTS 

quantity of this grade for their "Velvet" brand of smoking tobacco, 
and the R. J. Reynolds Tobacco Co. a small quantity for their 
"Prince Albert" brand of smoking tobacco. 

2. Virginia and North Carolina bright tobacco. — Defendant's plan, 
Exhibit E, states the total average crop of Virginia and North 
Carolina bright tobacco to be 240,000,000 pounds, of ^Yhich the 
American Tobacco Co. would require 51,295,870; the Liggett & 
Myers Tobacco Co., 27,755,411; the P. Lorillard Co., 2,556,007; 
the R. J. Reynolds Tobacco Co., 25,000,000; and the British- 
American Tobacco Co., 40,000,000 pounds. 

On the face of the exhibit it would appear that four important 
competitors for this t}^e of tobacco were pro\'ided by the trust's 
plan. The plan fails, however, to disclose that there are numerous 
grades of the type of tobacco known as Virginia and North Carolina 
bright, of which, perhaps, 12 important grades are required for 
different classes of tobacco products. Consequently there might 
be a number of large and active buyers for Virginia and North 
Carolina tobacco in the same market and yet no one compete 
with any of the others. 

{a) High-grade smoker: Thus, under the plan, the American 
Tobacco Co., for its brand of "Bull Durham," the largest selUng 
brand of smoking tobacco in the countr}^, would require great 
quantities of the grade known as high-grade smoker. Neither the 
Liggett & Myers Tobacco Co. nor the P. Lorillard Co. nor the 
British- American Co. appears to have allotted to it any brand of 
smoking tobacco which requires this grade of Virginia and North 
Carolina tobacco; and the requirements of the R. J. Reynolds 
Tobacco Co. for this grade would be insignificant. 

{b) Low-grade smoker: The Liggett & Myers Tobacco Co. re- 
quires for its brand of "Duke's jNIixture," the grade known as Vir- 
ginia and North Carolina low-grade smoker. Neither the American 
Tobacco Co. nor P. Lorillard Co. appears to have had allotted to it 
any brand of smoking tobacco which requires this low-grade 
smoker, and the amount, if any, required by the R. J. Reynolds 
Tobacco Co. or the British- American Co. would be insignificant. 

(c) Leaf: The R. J. Reynolds Tobacco Co., for their brands of 
"Schnapps" and "Brown's Mule" and minor brands, purchase 
the greater part of the grade known as leaf Virginia and North 
Carolina. Neither the American Tobacco Co. nor the Liggett & 
Myers Tobacco Co. requires any of this grade. 

id) Export leaf: The British- American Tobacco Co. purchases 



Efficacy of Dissolution 511 

for its export business entirely different grades of Virginia and North 
Carolina from those referred to above, the grades purchased by them 
being known as export leaf Virginia and North Carolina. Neither 
the American Tobacco Co., the Liggett & Myers Tobacco Co., the 
P. Lorillard Co., nor the R. J. Reynolds Tobacco Co. requires 
any appreciable quantity of the distinct export grades of tobacco. 

3. Dark western tobacco. — Defendants' plan. Exhibit E, shows that 
the average crop of dark western tobacco is 200,000,000 pounds, 
of which, however, a large part is exported. Of the American con- 
sumption, the American Tobacco Co. takes 19,433,365; Liggett & 
Myers Tobacco Co., only 3,196,866; P. Lorillard Co., only 1,446,- 
213; and the R. J. Reynolds Tobacco Co. none. It will be seen, 
therefore, that the greater part of all the purchases of dark western 
is made by the American Tobacco Co. and is used by it for its 
smoking brands of "Five Brothers" and "Peerless," the two 
largest selling brands of long-cut in America. 

4. Seed Leaf. — Defendants' plan. Exhibit E, shows that of the 
seed-leaf tobacco, which is used mainly for cigars and so-called 
scrap smoking and chewing tobacco, the average production of the 
country is 180,000,000 pounds. Of this the quantity purchased 
by the American Tobacco Co. is estimated at 6,112,099; by the 
Liggett & Myers Tobacco Co., 5,676,180; by the P. Lorillard Co., 
19,993,726; and by the R. J. Reynolds Tobacco Co. none. The 
trust's use of this tobacco, aside from cigars and cheroots, is mainly 
for its scrap-tobacco business and little cigars, of which the largest 
selling brands are "Honest" and " Polar Bear." Both of the brands 
are assigned to the P. Lorillard Co., thus making that company 
among the constituent elements of the trust, by far the leading 
purchaser of seed leaf. The trust's purchases of low-grade seed 
leaf — that is, the filler types, hail-cut types, and other types of leaf 
damaged in growing — are so great in Wisconsin, Connecticut, 
and New York that it practically dominates the American markets 
for low grades of seed-leaf tobacco, with the exception perhaps of 
Pennsylvania and Ohio — and in some years the markets of these 
States also. 

Second. — The cigarette trade. 

Defendants' plan, Exhibit D, indicates on its face such a dis- 
tribution of the cigarette business of the trust as to create reason- 
able competition between the American Tobacco Co., Liggett & 
Myers Tobacco Co., and P. Lorillard Co. The American Tobacco 



512 Industrial Combinations and Trusts 

Co. is given four brands, Liggett & Myers six brands, and the 
Lorillard Co. five brands. As a matter of fact, the creation of 
competition in cigarettes among these three companies is apparent 
only; because the brands are so distributed as to give each of the 
three companies substantially a dominating position in a specific 
branch of the cigarette trade or of a specific cigarette market. 

The cigarette trade falls substantially into six classes: Turkish 
high-grade cigarettes, Turkish lower-grade cigarettes, domestic or 
Virginia cigarettes, Turkish and domestic mixed, lowest grade of 
mixed Turkish and domestic, and domestic cigarettes with Turkish 
mouthpieces. 

1. Turkish high grade. — Under the plan, the dominating position 
in the Turkish high grade is given to the American Tobacco Co. 
through the "Pall Mall" brand. No brand of high-grade Turkish 
cigarette is allotted to the Liggett & Myers Tobacco Co. The 
brand given the P. Lorillard Co., "Egyptian Deities," has become 
relatively unimportant as compared with "Pall Mall." 

2. Turkish lower grade. — The dominant position in the lower- 
grade Turkish cigarettes is given to the P. Lorillard Co. by allotting 
to it the "Helmar," "Murad," "Mogul," and "Turkish Trophies." 
Neither the American nor the Liggett & Myers Tobacco Co. is 
allotted any strictly competing brand. 

3. Domestic or Virginia. — The Liggett & Myers Tobacco Co. 
is given the dominant position through the "Piedmont," "Home 
Run," " King Bee," and "American Beauty" brands. The P. Loril- 
lard Co. is not allotted any competing brand. The American To- 
bacco Co. receives the " Sweet Caporal" ; but the sales of that brand 
have become insignificant. 

4. Turkish and domestic mixed. — The Liggett & Myers Tobacco 
Co. is allotted the "Fatima" brand, which is believed to be the 
most important brand of cigarette upon the market. Neither the 
American Tobacco Co. nor the P. Lorillard Co. is allotted any 
brand which competes with this. 

5. Lowest grade Turkish or perhaps Turkish and Virginia mixed. — 
The American Tobacco Co. is allotted both the "Hassan" and the 
"Mecca" brands. Neither the Liggett & Myers Tobacco Co. nor 
the P. Lorillard Co. is allotted any competing brands. 

6. Domestic with Turkish mouthpiece. — ^The Liggett & Myers 
Tobacco Co. is allotted the "Imperiales," which has a monopoly 
not merely in this kind of cigarette but also substantially of the 
market (mainly the Pacific coast) where it is sold. 



Efficacy of Dissolution 513 

Not only is each of the three companies thus given a dominating 
position in the respective classes of the cigarette trade, but the 
domination through those classes extends to a certain extent also 
to particular territories. For instance, the P. Lorillard Co. has 
been allotted the brands which sell most largely in the East, and 
the Liggett & Myers Tobacco Co. the brands which sell best in the 
Middle West and South. 

Third. — The smoking-tobacco trade. 

Defendants' plan, Exhibit D, presents the apparent creation of 
competition in smoking tobacco by giving to the American Tobacco 
Co. six brands, to the Liggett & Myers Tobacco Co. seven brands, 
and to the P. Lorillard Co. five brands. In fact, no substantial 
competition between these three companies is provided for. 

The smoking tobacco of the country is divided into seven different 
classes, namely, high-grade granulated, low-grade granulated, high- 
grade burley granulated put up in lo-cent tm toxes, shced plugs, 
long cuts, cut plugs, and scrap. 

1. High-grade granulated. — The American Tobacco Co. is allotted 
"Bull Durham," the leading brand of smoking tobacco in the 
coimtry. No brand of high-grade Virginia granulated smoking to- 
bacco is allotted either to the Liggett & Myers Tobacco Co., the 
P. Lorillard Co., or the R. J. Reynolds Tobacco Co. 

2. Low-grade granulated. — ^The Liggett & Myers Tobacco Co. is 
allotted "Duke's Mixture," the leading brand of low-grade granu- 
lated tobacco in the country, as well as "King Bee." No competing 
brand of low-grade Virginia granulated smoking tobacco is allotted 
either to the American Tobacco Co. or to the P. Lorillard Co. 

3. High-grade burley granulated. — In this department there is a 
reasonable distribution of brands between the three companies, the 
American Tobacco Co. having "Tuxedo," the Liggett & Myers 
Tobacco Co. "Velvet," and the R. J. Reynolds Tobacco Co. the 
"Prince Albert" brands. 

4. Sliced plugs. — ^The leading brands are "Lucky Strike" and 
**01d English," both assigned to the American Tobacco Co. Neither 
the Liggett & Myers Tobacco Co., the P. Lorillard Co., nor the R.J. 
Re3molds Tobacco Co. is allotted any sUced plug brand. 

5. Long cuts. — ^The leading brands are "Five Brothers" and 
"Peerless," both allotted to the American Tobacco Co. These are 
the best selling brands in the country manufactured from dark 
tobacco. Neither the Leggett & Myers Tobacco Co., the P. Lorillard 



514 IXDL'STRLA.L COMBINATIONS AND TrUSTS 

Co., nor the R. J. Reynolds Tobacco Co. is allotted any brand com- 
peting -^-ith these. On the other hand, Liggett & flyers Tobacco 
Co. is allotted '" Sweet Tip Top," a kind of long-cut made from burley 
tobacco, and neither the American Tobacco Co. nor the P. Lorillard 
Tobacco Co., nor the R. J. Reynolds Tobacco Co. is allotted any 
brand which competes with it. 

6. Cut plugs. — The three leading brands of cut plugs are allotted 
to the P. Lorillard Co., namely," Union Leader," ''Sensation," and 
"Just Suits." Neither the American Tobacco Co. nor the Liggett & 
Myers Tobacco Co. is allotted any brand whch competes ^^ith these. 
The R. J. Reynolds Tobacco Co. has a new brand, ''Geo. Washing- 
ton," not yet well established, which may be deemed a competitor. 

7. Scrap. — The two principal brands are assigned to the P. Loril- 
lard Co., namely, "Honest" and "Polar Bear.'' Neither the American 
Tobacco Co., the Liggett & ]\Iyers Tobacco Co., nor the R. J. RejTi- 
olds Tobacco Co. appears to have any brand of scrap tobacco. 

Fourth. — The plug tobacco trade. 

Defendants' plan. Exhibit D, presents an apparent competition 
in plug tobacco by giving to the American Tobacco Co. nine brands, 
Liggett & ]Myers three brands, and P. Lorillard two brands. As. 
a matter of fact, there are several distinct classes of plug tobacco'. 
Plug may be divided broadly into sweet na\y plugs and flat plugs. 
The sweet na\y should be divided again into three grades — high, 
'medium, and low. The flat plugs are di\Tded into two classes, 
sun-cured and flue-cured. 

1. Xai'y high. — ^The leading na\y high-grade, "Piper Heidsieck," 
is allotted to the .American Tobacco Co. Neither the Liggett & 
Myers Tobacco Co., the P. Lorfllard Co., nor the R. J. Re}Tiolds 
Tobacco Co. is given any competing brand. There is another high- 
grade chewing tobacco — Drujnm.ond"s Natural Leaf — allotted to 
the Liggett & Myers Tobacco Co., but it is not of the same class as 
the Piper Heidsieck. 

2. Nai'y medium. — The leading brands of medium na\y plug are 
''Star" and "Horseshoe." Both of these are allotted to the Liggett 
& flyers Tobacco Co. These are the controlling brands in Amer- 
ica. The .American Tobacco Co. is allotted " Spearhead," a compet- 
ing brand, but its sales are relatively unimportant. The P. Lorillard 
Co. is allotted, like-v\Tse, a competing brand, "Climax," but the sales 
of it are also relatively unimportant. The sales for 1907 of "'Star" 



ErncACY or Dissolution 515 

were 27,322,478 pounds, of "Horseshoe" 19,211,575, whereas those 
of "Spearhead" were 6,850,025, and of "CHmax" 2,657,306. 

The P. Lorillard Co. also is allotted the "Planet" brand, but 
that is of a somewhat different character. It stands in a class by 
itself and controls the New England market. 

3. Navy low grade. — ^The leading brand of low-grade navy is 
"American Navy." This, as well as "Square Deal," "Corker," 
and "Town Talk," all navy low grade, are alloted to the American 
Co. Neither the Liggett & Myers Tobacco Co., the P. Lorillard Co., 
nor the R. J. Reynolds Tobacco Co. is allotted any brand of this 
class. 

4. Sun-cured plug, — The R. J. Reynolds Tobacco Co. controls 
many brands of the sun-cured plug, the principal of which is " R. J. R. 
Sun-cured." Exhibit D does not disclose that either the American 
Tobacco Co., the Liggett & Myers Tobacco Co., or the P. Lorillard 
Tobacco Co. will have any competing brand. 

5. Flue-cured plug. — The R. J. Reynolds Tobacco Co., through its 
several brands, of which the two leading ones are "Schnapps" and 
"Brown's Mule," controls the flue-cured fiat plug. Neither the 
American Tobacco Co. nor P. Lorillard Co. would have, so far as 
the plan discloses, any competing brand. 

The domination by particular companies of particular depart- 
ments of the plug-tobacco trade is not, however, confined merely 
to the domination of classes of plug, as indicated above. It extends 
to a certain extent also to the domination of markets. Thus the 
Liggett & Myers Tobacco Co., with "Star" and "Horseshoe," will 
dominate the Middle West; R. J. Reynolds Tobacco Co., with 
"Brown's Mule" and "Schnapps," will dominate the South; and 
the P. Lorillard Co., with "Planet," will dominate the chewmg-plug 
business of New England. 

Fifth. — Little cigars trade. 

Defendants' plan. Exhibit D, purports to show competition in 
httle cigars, awarding to the American Tobacco Co., Liggett & Myers 
Tobacco Co., and the P. Lorillard Co. each one brand. As a matter 
of fact, there are two or three distinct kinds of little cigars — the 
high grade, selling 10 for 10 cents; the low grade, selling 10 for 5 
cents; some with Burley and some with seed wrapper. 

The Lorillard Co., with "Between the Acts," will dominate the 
high-grade little-cigar business; the Liggett & Myers Tobacco Co. 
with "Recruit," will dominate the low-grade little-cigar business; 



5i6 Industrial Combinations and Trusts 

and the American Tobacco Co. will have "Sweet Caporal," a little- 
cigar brand of a distinct type. 

Exhibit 9 

respondents amended return to the alternative writ of 
mandamus ^ 

Respondents for a further return to the said alternative writ of 
mandamus, say that neither of relators has any direct personal 
interest in said Waters-Pierce Oil Company, and neither of them in 
his own right, or in his own interest, or in the pursuit of his own 
business, owns any of the stock of the Waters-Pierce Oil Company; 
but respondents say that said relators are acting herein solely as 
the representatives of John D. Rockefeller, William Rockefeller, 
Henry M. Flagler, John D. Archbold, Oliver H. Payne, Charles M. 
Pratt, and divers other persons whose names are to respondents 
unknown, who are the same parties who have heretofore owned and 
controlled the Standard Oil Company of New Jersey, which has 
been heretofore dissolved by the courts of the United States as an 
unlawful combination in restraint of trade, as will be hereinafter 
more particularly set forth, and that said individuals so represented 
by relators have combined and confederated to continue said un- 
lawful combination and conspiracy thus dissolved. Respondents 
further say that said unlawful combination and conspiracy now 
existing consists in the control of the majority of stock in subsidiary 
corporations located in different States, and that such stock control 
is the essential and effective means of furthering the purposes of said 
imlawful combination, the purpose and effect of which is to create 
a monopoly in the production and sale of petroleum and its products 
throughout the United States. 

^ State of Missouri ex rel. Stewart v. /. D. Johnson. Pleadings, Rulings by 
the Court etc., In the Circuit Court of the City of St. Louis, April Term, 191 2, 
pp. 40 ff. This controversy arose by reason of the refusal of the Inspectors of 
Election of the Waters-Pierce Oil Company, that had been designated by Mr. 
Pierce as President, to count the majority votes of the Company that had been 
cast at the instance of the Standard Oil interests. This refusal was based on the 
ground that the shares were being illegally voted in furtherance of a conspiracy 
to violate and evade the decree of the Federal Court. 

Although Mr. Pierce owns only approximately one-third of the shares he has 
been in control of the Waters-Pierce Company and under the Missouri Law the 
President names the Inspectors of Election. Upon the refusal to count these 
votes the proxies named by the Standard Oil brought a proceeding in mandamus 
in the State of Missouri against the Inspectors of Election. — Ed. 



Efficacy of Dissolution 517 

Respondents further say that the relators herein are acting solely 
as the representatives of said unlawful combination and conspiracy in 
attempting to secure the control of the Waters-Pierce Oil Company, 
and that the means by which the objects of said conspiracy are 
sought to be carried out are the election of a majority of the direc- 
torate of the Waters-Pierce Oil Company and other subsidiary 
corporations in different States, which should thus be composed 
either of the parties to said conspiracy or the nominees of those en- 
gaged therein; and by this means the complete domination of the 
industry will be effected and a monopoly secured therein. 

Respondents say that the relators herein are parties to said con- 
spiracy, and are under its control, and are its nominees for the said 
purpose, and that the attempt to elect them to the directorate of 
the Waters-Pierce Oil Company is for the purpose of securing the 
control of said company in the furtherance of said unlawful con- 
spiracy and as one of the overt acts in effectuating this common 
design in the establishment of said monopoly. Respondents say 
that this proceeding in mandamus is a furtherance of said unlawful 
purpose. 

Respondents further say that the unlawful combination and con- 
spiracy, violative of the laws of the United States, and of the State 
of Missouri, which is thus sought to be effected by these relators, 
in securing the control of the Waters-Pierce Oil Company, is a con- 
tinuance and renewal of the same unlawful combination and con- 
spiracy in restraint of trade which has been adjudged and condemned 
by the Supreme Court of Missouri, affirmed by the Supreme Court 
of the United States and by the Circuit Court of the United States, 
the Eighth Judicial Circuit, affirmed by the Supreme Court of the 
United States, as hereinafter specifically set forth. 

Wherefore, respondents say that relators are merely acting in 
behalf of said unlawful combination and conspiracy, and for further- 
ing the purposes thereof, and that the jurisdiction and process of 
this court should not be used to accomplish any such unlawful end 
or purpose. 



And respondents further say: That the relator, George W. Mayer, 
until two days before the annual election for directors of the Waters- 
Pierce Oil Company, was manager at Kansas City, Missouri, for 
the Standard Oil Company of Indiana, and had been for more than 
ten years prior to that time; that he resigned his said position of 



5i8 Industrial Combinations and Trusts 

manager for the Standard Oil Company of Indiana at Kansas City 
to accept election to the Board of Directors of the Waters-Pierce 
Oil Company; that his resignation as aforesaid was in obedience to 
the dictation of the vice-president, or president, of the Standard 
Oil Company of Indiana, and was a mere pretense to enable the 
Standard Oil Company of Indiana through him by his election to the 
board of the Waters-Pierce Oil Company to gain control of the man- 
agement of the Waters-Pierce Oil Company. 

That the relator, Robert W. Stewart, has been attorney and 
counsel for the Standard Oil Company of Indiana and other in- 
terests affiliated and associated with the said Standard Oil Company 
of Indiana and the Standard Oil Company of New Jersey, and the 
managers and stockholders of said two companies; and that said 
Stewart at the instance and request of the officers and majority 
shareholders of each of said two companies acquired a share of stock 
in the Waters-Pierce Oil Company in order to enable him through 
the vote and influence of the Standard Oil Company of New Jersey, 
Standard Oil Company of Indiana, and their respective officers, 
agents, employes and controlling shareholders to become a director 
of the Waters-Pierce Oil Company at the annual election for directors, 
to be held on the 15th day of February, 191 2, and thereby enable 
the said Standard Oil Company of Indiana, its officers, agents and 
the holders of the majority of its stock through the election of said 
Stewart and said Mayer and Adams to dominate and control in the 
interest of said Standard Oil Company of Indiana and its majority 
shareholders, officers and agents the affairs of the Waters-Pierce Oil 
Company. 



The respondents aver that to permit the election of the relators 
as directors of the Waters-Pierce Oil Company would be to place the 
affairs of the Waters-Pierce Oil Company under the complete dom- 
ination and control of the Standard Oil Company of Indiana, and 
the majority owners of the stock of the Standard Oil Company of 
Indiana. 

Respondents further say that since the 13th day of February, 
1909, as directed by a decree of the Supreme Court of Missouri, in a 
proceeding wherein the State of Missouri upon the information of 
the Attorney-General against the Waters-Pierce Oil Company, the 
Standard Oil Company of Indiana and the Republic Oil Company, 
the affairs of the Waters-Pierce Oil Company have been conducted 



Efficacy of Dissolution 519 

by Henry Clay Pierce and Clay Arthur Pierce in complete inde- 
pendence of the Standard Oil Company of Indiana and of all other 
combinations whatsoever as required by the order of the Court in 
that case to be done. 

That the Standard Oil Company of Indiana and the Waters-Pierce 
Oil Company are competitors in the business of selling the products 
of petroleum, as was held in the case above mentioned, and that if 
the Standard Oil Company of Indiana, through the relators and 
the holders of the majority of stock of the said Standard Oil Company 
of Indiana, should gain control of the affairs of the Waters-Pierce 
Oil Company, as is proposed by the relators in this proceeding, the 
corporate charter of the Waters-Pierce Oil Company will be thereby 
forfeited, and the said Henry Clay Pierce and the minority share- 
holders of the Waters-Pierce Oil Company associated with him will 
sustain great and serious loss through the forfeiture of the charter 
of the said Waters-Pierce Oil Company, as well as in the management 
of the affairs of that company, for that those whom the relators 
represent as aforesaid herein have a greater interest in promulgating 
the success of the Standard Oil Company of Indiana than that of 
the Waters-Pierce Oil Company. 

Relators further say that on the 29th day of March, 1905, the State 
of Missouri, upon the information of the Attorney-General, in- 
stituted in the Supreme Court of the State a proceeding in quo war- 
ranto against the Standard Oil Company of Indiana, the Waters- 
Pierce Oil Company and the Republic Oil Company from doing 
business in the State of Missouri and to forfeit the charter of the 
Waters-Pierce Oil Company because they were then and had there- 
tofore been engaged in a combination in restraint of trade in the 
State of Missouri. 

That such proceeding was had in said case as that on the 9th day 
of March, 1909, a judgment of ouster was entered in said cause 
against the Standard Oil Company of Indiana and the RepubHc Oil 
Company, a non-resident corporation, and a judgment conditionally 
forfeiting the charter of the Waters-Pierce Oil Company, a domestic 
corporation, as alleged in the alternative writ herein. 

That from said judgment and decree the Standard Oil Company 
of Indiana and said Republic Oil Company appealed to the Supreme 
Court of the United States of America, and pending said appeal a 
supersedeas was granted said appellant, but that no appeal was 
taken therefrom by the Waters-Pierce Oil Company, which, as afore- 
said, submitted to said decree and obeyed the same, and pending 



520 Industrial Combinations and Trusts 

the said appeal a supersedeas was granted said appellants; but there- 
after, at the October Term, 191 1, on April i, 1912 said cause having 
been duly submitted, the judgment of the Supreme Court of the 
State of Missouri was in all things afl&rmed by the Supreme Court 
of the United States, so that said decree is now in full force and effect 
as to said Standard Oil Company of Indiana and said Republic Oil 
Company, as well as to said Waters-Pierce Oil Company. 
That amongst other things, it was decreed in said case as follows: 

"But it is further considered, ordered and adjudged by 
this Court, that if the said Waters-Pierce Oil Company shall 
pay said fine to the clerk of this court on or before the first 
day of March, 1909, and shall immediately cease all connection 
with the said respondents herein in continuing or maintaining 
said pool, trust and conspiracy to fix, control and regulate the 
prices of naphtha, benzine, gasoline, kerosene, lubricating oil 
and all other products of petroleum, and shall refrain from all 
pools, trusts and combinations, to control the prices of said 
products of petroleum, and all combines and conspiracies to 
prevent competition in the trade of buying and selling said 
products and shall furnish this Court with satisfactory evi- 
dence of its compliance with this judgment and of its intention 
in good faith to cease all connection with its said co-respondents 
herein and all other parties or companies whatsoever and in 
the future maintain and carry on the business as an independ- 
ent corporation in obedience to the laws of this State and its 
charter, then the judgment of the ouster herein shall be and 
is hereby suspended and the writ of ouster herein will not 
issue until expressly directed by the order of this Court." 

Respondents further pray preference to the said proceeding as 
reported in Volume 218 of the Official Reports of the Supreme Court 
of the State of Missouri. 

Respondents further say that on the 15th day of February, 1909, 
the Waters-Pierce Oil Company filed in said court the following ac- 
ceptance of said decree, accompanied by a duly exemplified copy of 
the resolution of its Board of Directors in that behalf, to-wit: 

" Comes now the Waters-Pierce Oil Company in the above- 
entitled cause, pursuant to the order and judgment rendered 
herein, and files heremth a duly certified copy of a resolution 
of its Board of Directors, passed February 13, 1909, wherein 



Efficacy of Dissolution 521 

and whereby it agrees to accept, and does accept the conditions 
of the aforesaid decree and agrees to abide by the same, and 
does hereby respectfully submit itself to the further orders, 
judgments and decrees of this Honorable Court in and con- 
cerning the premises." 

These respondents say that in said cause it appeared that the 
Standard Oil Company of New Jersey owned practically all of the 
stock which relators herein now claim is being offered to your re- 
spondents as electors for them in the Waters-Pierce Oil Company, 
namely, practically 66 per cent thereof; that said stock was then 
registered on the stock books of the Waters-Pierce Oil Company in 
the name of M. M. Van Beuren, who appeared as owner and a joint 
attorney in fact of the electors whom the relators claim would have 
cast, if permitted, their votes for them. It also appeared in said 
cause that the Standard Oil Company of New Jersey owned all of 
the shares of the Standard Oil Company of Indiana, co-respondent 
of the Waters-Pierce Oil Company in said cause. 



Respondents say in further return to said alternative writ of man- 
damus that on the 15th day of November, 1906, the United States 
of America instituted a proceeding under an Act of Congress, ap- 
proved July 2, 1890, entitled an "Act to Protect Trade and Com- 
merce against Unlawful Restraint and Monopolies," commonly 
known as the Sherman Anti-Trust law, against John D. Rockefeller, 
William Rockefeller, Henry H. Rogers, Henry M. Flagler, John D. 
Archbold, Oliver H. Payne and Charles M. Pratt, and other persons 
and corporations hereinafter named in the decree herein referred 
to, save and except the Standard Oil Company of Louisiana and the 
Magnolia Oil Company and the Waters-Pierce Oil Company and 
other defendants, to restrain them in substance from continuing a 
combination and conspiracy in restraint of trade and commerce, 
among the several States, in the Territories and with foreign nations; 
that such proceedings were had therein that on the 20th day of 
November, 1909 a decree was entered therein, . . . 



The respondents further say that an appeal was prosecuted from 
said decree to the Supreme Court of the United States, which latter 
Court, after due hearing, afl&rmed all of the said quoted parts of said 
decree, and in its opinion, which respondents beg leave to be con- 



52 2 Industrial Combinations and Trusts 

sidered a part of this return as fully as if set forth herein, commenting 
upon the objections of section 6 of said decree, said: 

''So far as the owners of the stock of the subsidiary cor- 
porations and the corporations themselves were concerned 
after the stock had been transferred, section 6 of the decree 
enjoined them from in any way conspiring or combining to 
violate the act or to monopolize or attempt to monopolize in 
virtue of their ownership of the stock transferred to them, and 
prohibited all agreements between the subsidiary corporations 
or other stockholders in the future, tending to produce or 
bring about further violations of the act. * * * We so think, 
since we construe the sixth paragraph of the decree not as 
depriving the stockholders or the corporations after the dis- 
solution of the combination, of the power to make normal and 
lawful contracts or agreements, but as restraining them from, 
by any device whatever, recreating, directly or indirectly, the 
illegal combination which the decree dissolved. In other 
words, we construe the sixth paragraph of the decree not as 
depriving the stockholders or corporations of the right to live 
under the law oi the land, but as compelling obedience to that 
law. As therefore, the sixth paragraph as thus construed is 
not amenable of the criticism directed against it and cannot 
produce the harmful results which the arguments suggest, it 
was obviously right." 

These respondents say the said decree has not been complied with in 
any substantial respect; that the individual defendants in that case, and 
the corporations which they control through their ownership and control 
of the majority of the shares of stock of the Standard Oil Company of 
New Jersey, at the time said decree was entered, is now owned and con- 
trolled by a combination between said individual defendants mentioned 
in said decree, their associates, confederates and allies, through the con- 
certed action in their ownership of the stock of the Standard Oil Company 
of Indiana, and all of the defendant companies named in said decree} 
That said combination continues as it did as found in the first para- 
graph or section of the decree, since the year 1890, when the said 
defendants had entered into and were carrying out a combination 
or conspiracy in pursuance whereof they caused the capital stock of 
the Standard Oil Company to be increased to one hundred million 
1 Italics are the Editor's. 



Efficacy of Dissolution 523 

dollars, and assumed control of all subsidiary companies through the 
ownership of stock by the Standard Oil Company of New Jersey; 
that instead of controlling all the subsidiary companies mentioned in 
said decree by and through the Standard Oil Company of New Jersey, 
the stockholders of the Standard Oil Company of New Jersey have re- 
sumed the ownership of the stock of said subsidiary companies, through 
a pretended distribution thereof from the Standard Oil Company of 
New Jersey, and are continuing to control all of the subsidiary com- 
panies through their ownership of the majority shares of the said sub- 
sidiary companies, including the Waters-Pierce Oil Company, just as 
they had prior to the organization of the Standard Oil Company of 
New Jersey, as described in section i of said decree, hereinbefore set 
forthJ 

And that the present action of relators, supported by the shares 
of stock formerly owned by the Standard Oil Company of New 
Jersey, is an effort upon the part of the defendants in the aforesaid 
cause to assimie control of the Waters-Pierce Oil Company and draw 
it into a continuation of the conspiracy enjoined by that decree and 
compel it, through and by an understanding and agreement and 
concerted action, by and between the holders of the majority of 
the shares of stock of said subsidiary companies, to continue to 
violate the Federal law and the said decree of the Federal Court. 

That the shares of stock set forth in the alternative writ herein 
are the same shares of stock formerly held by the Standard Oil 
Company of New Jersey, and are now being attempted to be voted 
to aid the furtherance of the conspiracy enjoined by the decree afore- 
said; that the said individual defendants named in said decree in 
association with other confederates and allies have combined and 
confederated in manner and form as aforesaid, viz, through the 
majority ownership of stock in all the subsidiary companies men- 
tioned in said decree, to control in defiance of said decree, said sub- 
sidiary corporations, in combination and restraint of trade and for 
the purpose of attaining the monopoly enjoined in said decree; that 
said pretended dissolution is a farce, a disguise and a pretext, and has 
made no change whatsoever in the relation of said companies or their 
direction, management and control.^ 

Wherefore, respondent says that the jurisdiction and process of 
this Court should not be given to aid the relators and their con- 
federates in a disguised attempt to evade the laws of the United 
States and the decrees hereinbefore referred to. 
1 Italics are the Editor's. 



524 Industrial Combinations and Trusts 



XII 

These respondents further making return to the said alterna- 
tive writ of mandamus say that this Court has no jurisdiction to 
entertain this proceeding or grant the peremptory writ herein, for 
that the relators have another summary remedy, provided by the 
statutes of this State, to contest their election as directors of the 
Waters-Pierce Oil Company. 

And respondents in further return deny each and every allega- 
tion in the alternative writ not hereinbefore admitted or denied. 
Wherefore, respondents say that the votes and proxies offered 
to be voted by the said Taylor and Van Beuren and the votes 
offered to be voted by relators were not lawful votes at said elec- 
tion, and were properly rejected by these respondents; and re- 
spondents, having made full return to said alternative writ of 
mandamus, pray to be hence discharged and to recover their costs 
herein most wrongfully expended. 

Boyle & Priest, 
Judson, Green and Henry, 
Fordyce, Holliday & White, 
Attorneys for Respondents. 
John D. Johnson, 
Of Counsel. 



CHAPTER XVI 

PROPOSED METHODS OF DEALING WITH THE TRUST PROBLEM 

In this concluding chapter, there have been brought together 
the views of certain gentlemen as to the methods of dealing with 
the Trusts in the United States. Competition has its advocates 
as well as combination. The exhibits have been selected with the 
idea of showing that there are two distinct lines of thought in re- 
gard to the Trusts; one looking to Government supervision, the 
other to competition as an ultimate solution of the problem. It 
has of course been possible to include the ideas of only a compara- 
tively few men, but the editor believes that the views here ex- 
pressed are fairly representative. — Ed. 

Exhibit i 

president william howard tatt * 

new remedies suggested. 

Much is said of the repeal of this statute and of constructive 
legislation intended to accomplish the purpose and blaze a clear 
path for honest merchants and business men to follow. It may be 
that such a plan will be evolved, but I submit that the discussions 
which have been brought out in recent days by the fear of the con- 
tinued execution of the antitrust law have produced nothing but 
glittering generalities and have offered no line of distinction or 
rule of action as definite and as clear as that which the Supreme 
Court itself lays down in enforcing the statute. 

SUPPLEMENTAL LEGISLATION NEEDED — NOT REPEAL OR AMENDMENT. 

I see no objection — and indeed I can see decided advantages — 
in the enactment of a law which shall describe and denounce 
methods of competition which are unfair and are badges of the un- 
lawful purpose denounced in the antitrust law. The attempt and 
purpose to suppress a competitor by underselling him at a price so 

1 Message to Congress of December 5, 191 1. Congressional Record, 62d 
Cong. 2d Sess. Vol. 48, pp. 25-26. 

525 



526 Industrial Combinations and Trusts 

unprofitable as to drive him out of business, or the making of ex- 
clusive contracts with customers under which they are required to 
give up association with other manufacturers, and numerous kin- 
dred methods for stifling competition and effecting monopoly, 
should be described with sufficient accuracy in a criminal statute on 
the one hand to enable the Government to shorten its task by pros- 
ecuting single misdemeanors instead of an entire conspiracy, and, 
on the other hand, to serve the purpose of pointing out more in 
detail to the business community what must be avoided. 

federal incorporation recommended. 

In a special message to Congress on January 7, 1910, 1 ventured 
to point out the disturbance to business that would probably at- 
tend the dissolution of these offending trusts. I said: 

But such an Investigation and possible prosecution of corporations whose 
prosperity or destruction affects the comfort not only of stockholders but of 
milhons of wage earners, employees, and associated tradesmen must necessarily 
tend to disturb the confidence of the business community, to dry up the now 
flowing sources of capital from its places of hoarding, and produce a halt in our 
present prosperity that will cause suffering and strained circumstances among 
the innocent many for the faults of the guilty few. The question which I wish 
in this message to bring clearly to the consideration and discussion of Congress 
is whether, in order to avoid such a possible business danger, something cannot 
be done by which these business combinations may be offered a means, without 
great financial disturbance, of changing the character, organization, and extent 
of their business into one within the hues of the law, under Federal control and 
supervision, securing compliance with the antitrust statute. 

Generally, in the industrial combinations called "trusts" the principal busi- 
ness is the sale of goods in many States and in foreign markets; in other words, 
the interstate and foreign business far exceeds the business done in any one 
State. This fact will justify the Federal Government in granting a Federal 
charter to such a combination to make and sell in interstate and foreign com- 
merce the products of useful manufacture under such hmitations as will secure 
a comphance with the antitrust law. It is possible so to frame a statute that 
while it offers protection to a Federal company against harmful, vexatious, and 
unnecessary invasion by the States, it shall subject it to reasonable taxation 
and control by the States with respect to its purely local business. * * * 

Corporations organized under this act should be prohibited from acquiring 
and holding stock in other corporations (except for special reasons, upon ap- 
proval by the proper Federal authority), thus avoiding the creation under 
national auspices of the holding company with subordinate corporations in 
different States, which has been such an effective agency in the creation of the 
great trusts and monopolies. 

If the prohibition of the antitrust act against combinations in restraint of 
trade is to be effectively enforced, it is essential that the National Government 
shall provide for the creation of national corporations to carry on a legitimate 
business throughout the United States. The conflicting laws of the different 



Methods or Dealing with the Trust Problem 527 

States of the Union with respect to foreign corporations make it difi&cult, if not 
impossible, for one corporation to comply with their requirements so as to carry- 
on business in a number of different states. 

I renew the recommendation of the enactment of a general law 
providing for the voluntary formation of corporations to engage in 
trade and commerce among the States and with foreign nations. 
Every argument which was then advanced for such a law, and 
every explanation which was at that time offered to possible ob- 
jections, have been confirmed by our experience since the enforce- 
ment of the antitrust statute has resulted in the actual dissolution 
of active commercial organizations. 

It is even more manifest now than it was then that the denuncia- 
tion of conspiracies in restraint of trade should not and does not 
mean the denial of organizations large enough to be intrusted 
with our interstate and foreign trade. It has been made more 
clear now than it was then that a purely negative statute Hke the 
antitrust law may well be supplemented by specific provisions for 
the building up and regulation of legitimate national and foreign 
commerce. 

GOVERNMENT ADMINISTRATIVE EXPERTS NEEDED TO AID COURTS 
IN TRUST DISSOLUTIONS. 

The drafting of the decrees in the dissolution of the present 
trusts, with a view to their reorganization into legitimate corpora- 
tions, has made it especially apparent that the courts are not pro- 
vided with the administrative machinery to make the necessary 
inquiries preparatory to reorganization, or to pursue such inquiries, 
and they should be empowered to invoke the aid of the Bureau of 
Corporations in determining the suitable reorganization of the 
disintegrated parts. The circuit court and the Attorney General 
v/ere greatly aided in framing the decree in the Tobacco Trust 
dissolution by an expert from the Bureau of Corporations. 

FEDERAL CORPORATION COMMISSION PROPOSED. 

I do not set forth in detail the terms and sections of a statute which 
might supply the constructive legislation permitting and aiding the 
formation of combinations of capital into Federal corporations. They 
should be subject to rigid rules as to their organization and procedure, 
including effective publicity, and to the closest supervision as to the 
issue of stock and bonds by an executive bureau or commission in the 
Department of Commerce and Labor, to which in times of doubt 



52S Industrial Combinations and Trusts 

they might well submit their proposed plans for future business. It 
must be distinctly understood that incorporation under a Federal law 
could not exempt the company thus formed and its incorporators 
and managers from prosecution imder the antitrust law for subse- 
quent illegal conduct, but the publicity of its procedure and the op- 
portunity for frequent consultation with the bureau or commission in 
charge of the incorporation as to the legitimate purpose of its trans- 
actions would offer it as great security against successful prosecutions 
for violations of the law as would be practical or \\dse. 

Such a bureau or commission might well be invested also mth the 
duty already referred to, of aiding courts in the dissolution and re- 
creation of trusts within the law. It should be an executive tribunal 
of the dignity and power of the Comptroller of the Currency or the 
Interstate Commerce Commission, which now exercise supervisory 
power over important classes of corporations under Federal regula- 
tion. 

The drafting of such a Federal incorporation law would offer ample 
opportunity to prevent many manifest evils in corporate manage- 
ment to-day, including irresponsibility of control in the hands of 
the few w^ho are not the real owners. 

INCORPORATION VOLUNTARY. 

I recommend that the Federal charters thus to be granted shall be 
voluntary, at least imtil experience justifies mandatory provisions. 
The benefit to be derived from the operation of great businesses 
under the protection of such a charter would attract all who are anx- 
ious to keep "^nthin the lines of the law. Other large combinations 
that fail to take advantage of the Federal incorporation will not have 
a right to complain if their failure is ascribed to un\\iHingness to sub- 
mit their transactions to the careful official scrutiny, competent su- 
per\dsion, and pubhcity attendant upon the enjoyment of such a 
charter. 

ONLY SUPPLEMENTAL LEGISLATION NEEDED. 

The opportunity thus suggested for Federal incorporation, it 

seems to me, is suitable constructive legislation needed to facilitate 
the squaring of great industrial enterprises to the rule of action laid 
down by the antitrust law. This statute as construed by the Su- 
preme Court must continue to be the line of distinction for legitimate 
business. It must he enforced, unless we are to banish individtmUsm 
from all business and reduce it to one common system of regulation or 



Methods of Dealing with the Trust Problem 529 

control of prices like that which now prevails with respect to public 
utilities J and which when applied to all business would be a long step 
toward State socialism.^ 

importance of the antitrust act. 

The antitrust act is the expression of the effort of a freedom-loving 
people to preserve equality of opportunity. It is the result of the 
confident determination of such a people to maintain their future 
growth by preserving uncontrolled and unrestricted the enterprise 
of the individual, his industry, his ingenuity, his intelligence, and his 
independent courage. 

For 20 years or more this statute has been upon the statute book. 
All knew its general purpose and approved. Many of its violators 
were cynical over its assumed impotence. It seemed impossible of 
enforcement. Slowly the mills of the courts ground, and only grad- 
ually did the majesty of the law assert itself. Many of its statesmen 
authors died before it became a living force, and they and others saw 
the evil grow which they had hoped to destroy. Now its efficacy is 
seen; now its power is heavy; now its object is near achievement. 
Now we hear the call for its repeal on the plea that it interferes with 
business prosperity, and we are advised in most general terms how 
by some other statute and in some other way the evil we are just 
stamping out can be cured if we only abandon this work of 20 years 
and try another experiment for another term of years. 

It is said that the act has not done good. Can this be said in the 
face of the effect of the Northern Securities decree? That decree 
was in no way so drastic or inhibitive in detail as either the Standard 
Oil decree or the Tobacco decree; but did it not stop for all time the 
then powerful movement toward the control of all the railroads of 
the country in a single hand? Such a one-man power could not have 
been a healthful influence in the Republic, even though exercised 
under the general supervision of an interstate commission. 

Do we desire to make such ruthless combinations and monopolies 
lawful? When all energies are directed, not toward the reduction of 
the cost of production for the public benefit by a healthful competi- 
tion, but toward new ways and means for making permanent in a 
few hands the absolute control of the conditions and prices prevailing 
in the whole field of industry, then individual enterprise and effort 
will be paralyzed and the spirit of commercial freedom will be dead. 
The White House, December 5, igii Wm. H. Taft 

^ Italics are the Editor's. 



530 Industrl^l Combinations and Trusts 

Exhibit 2 

senator robert w. la follette ^ 

A BILL To further protect trade and commerce against imla^-ful 
restraints and monopolies. 

Be it enacted by the Senate and House of Represejttatives of the 
United States of America in Cojigress assembled, That the act approved 
July second, eighteen hundred and ninety, entitled ''An act to pro- 
tect trade and commerce against imla-^'ful restraints and monop- 
ohes," is hereby amended by adding thereto the following: 

"Sec. 9. Whenever in any suit or proceeding, ci\il or criminal, 
brought under or invohing the pro^-isions of this act, it shall appear 
that any contract, combination in the form of trust or otherwise, or 
conspiracy was entered into, existed, or exists, which was or is in 
any respect or to any extent in restraint of trade or commerce among 
the several States or ^ith foreign nations, the burden of proof to 
estabhsh the reasonableness of such restraint shall be upon the party 
who contends that said restraint of trade is reasonable. 

"Sec. 10. WTienever in any suit or proceeding, civil or criminal, 
brought under or invoh-ing the pro\dsions of this act it shall appear 
that any contract, combination in the form of trust or otherwise, or 
conspiracy was entered into, existed, or exists, which was or is in any 
respect or to any extent in restraint of trade or commerce among the 
several States or with foreign nations, such restraint shall be con- 
clusively deemed to have been or to be imreasonable and in \iolation 
of the pro\dsions of this act as to any party thereto — 

"A. WTio, in carr}Tng on any business to which such contract, 
combination, or conspiracy relates or in connection thereT\ith — 

" (a) As the vendor, lessor, hcensor, or bailor, of any article at- 
tempts to restrain or prevent in any manner, either directly or in- 
directly, any vendee, lessee, licensee, or bailee from purchasing, leas- 
ing, Hcensing, or obtaining such article, or any other article from somie 
other person, or using such article or any other article obtained from 
some other person, whether such attempt (first) be made by an agree- 
ment or pro\dsion, express or impUed, against such piu-chase, lease, 
license, or use, or (second) be made by a condition in the sale, lease, 
license, or bailment against such purchase, lease, Ucense, or use, or 

2 Bill introduced by Senator La Follette. Senate 3276, 62nd Cong, ist Sess. 
Cf. op. cit. Senate Committee on Interstate Commerce pp. 1778-82. The italics 
are as reprinted in those hearings. — Ed. 



Methods of Dealing with the Trust Problem 531 

(third) be made by imposing any restriction upon the use of the ar- 
ticle so sold, leased, Hcensed, or bailed, or (fourth) be made by making 
in the price, rental, or Hcense any discrimination based upon whether 
the vendee, lessee, licensee, or bailee purchases, hires, or becomes a 
licensee of, or uses any article made, sold, licensed, leased, or furnished 
by some other person, or (fifth) be made in any other manner except 
the ordinary solicitation of trade; 

"(b) As the vendor, lessor, licensor, or bailor of any article at- 
tempts to prevent or restrain competition by making in the price, 
rental, or royalty, or other terms of any such sale, lease, license, or 
bailment any discrimination based upon whether the vendee, lessee, 
licensee, or bailee purchases, leases, licenses, or takes on bailment 
from him articles of a particular quantity or aggregate price; 

"(c) As the vendor, lessor, licensor, or bailor of any article at- 
tempts to prevent or restrain competition either by refusing to supply 
to any other person requesting the same any article sold, leased, 
licensed, bailed, or otherwise dealt in or furnished by him, or by con- 
senting to supply the same only upon terms or conditions in some re- 
spect less favorable than are accorded to any other person; 

"(d) As the vendor, lessor, licensor, or bailor of any article at- 
tempts to prevent or restrain competition by supplying or offering 
to supply to any person or persons doing business in any particular 
territory articles sold, leased, licensed, bailed, or otherwise dealt in 
or furnished by him, upon terms or conditions in any respect more 
favorable than are accorded by him to his other customers ; 

" (e) As the vendor, lessor, licensor, or bailor of any article at- 
tempts to restrain or prevent competition by making any contract 
or arrangement under which he shall not sell, lease, or license any 
article in which he deals to certain persons or class of persons, or to 
those doing business within certain districts or territory; 

" (/) If ^ natural person does business directly or indirectly under 
any name other than his own or that of a partnership of which he is a 
member; or if a corporation does business under any name other than 
its own corporate name; or if there be any concealment or misrepresenta- 
tion as to the ownership or control of such business; or if there be any 
misrepresentation as to the identity of the manufacturer , producer^ vendor ^ 
or licensor of any article sold or leased. 

"(g) As the vendor, lessor, licensor, or bailor of any article attempts 
to prevent or destroy competition by supplying or ofering to supply such 
article without charge or at prices at or below the cost of production and 
distribution. 



532 Industrial Combinations and Trusts 

" Qi) As the vendor, lessor, licensor, or bailor of any article spies upon 
the business of any competitor or secures information concerning his 
business, either through bribery of an agent or employee of such com- 
petitor or of any State or Federal official, or by any illegal means what- 
soever secures information concerning the competitive business, 

"[f] {i) As the vendor, lessor, licensor, or bailor of any article 
attempts to prevent or restrain competition by the use of any unfair 
or oppressive methods of competition; or 

"B. Who has been sentenced, or who controls or is controlled by 
or is a member of or forms a part of any corporation or association 
which has been sentenced under the act to regulate commerce, ap- 
proved February fourth, eighteen hundred and eighty-seven, or any 
amendment thereof, for any act or thing relating to any trade or 
business affected by such restraint done or occurring after this act 
goes into effect. 

"The foregoing enumeration of acts, conduct, methods, and de- 
vices which it is herein declared shall each conclusively be deemed 
unreasonable does not include, and shall not be construed to exclude 
or as intended to exclude, any other acts, conduct, methods, or de- 
vices which are or may be unreasonable. 

"The provisions of clause {a) of this section shall not apply to any 
case where the vendor, lessor, licensor, or bailor of any machine, tool, 
implement, or appliance protected by lawful patent rights vested in 
such vendor, lessor, licensor, or bailor requires the purchaser, lessee, 
licensee, or bailee to purchase or hire from his component or con- 
stituent parts of such machine, ^ tool, implement, or appliance which 
such vendee, lessee, licensee, or bailee may thereafter acquire during 
the continuance of such patent right, nor shall any of the provisions 
of this section apply to the mere appointment of sole agents to sell, 
lease, license, bail, or furnish any article. 

"Sec. II. Whenever in any suit or proceeding, civil or criminal, 
brought under or involving the provisions of this act, it shall appear 
that any contract, combination in the form of trust or otherwise, or 
conspiracy was entered into, existed, or exists which was or is in any 
respect or to any extent in restraint of trade or commerce among 
the several States or with foreign nations, there shall at once arise a 
rebuttable presumption that such restraint was or is unreasonable — 

" (a) If in the business in connection with which said restraint of 
trade existed or exists, the person or persons engaged in such contract, 
combination, or conspiracy controlled or controls, or is a part of 
1 This construction is thus in the original. — Ed. 



Methods of Dealing with the Trust Problem 533 

any corporation or association which controlled or controls at the 
time such restraint is alleged to have existed or to exist, more than 
forty per centum in value of the total quantity sold in the United 
States, or more than forty per centum in value of the total quantity 
sold in the part or district of the United States to which the business 
of such person, corporation, or association extends, of any article 
dealt in by such person, the trade in which is affected by such re- 
straint. 

" (b) If the vendor, lessor, licensor, or bailor of any article with 
a view to preventing competition fixes an unreasonably high price 
upon any article which enters into the manufacture of an article 
which is used in producing any other article sold, leased, licensed, 
bailed, or otherwise furnished by him, the trade in which is affected 
by such restraint. 

^'Sec. 12. Whenever in any suit or proceeding, civil or criminal, 
brought by or on behalf of the Government under the provisions of 
this act a final judgment or decree shall have been rendered to the 
effect that a defendant in violation of the provisions of this act has 
entered into a contract, combination in form of trust or otherwise, 
or conspiracy in restraint of trade or commerce among the several 
States or with foreign nations, or has monopoHzed or attempted to 
monopolize or combined with any person or persons to monopolize 
any part of the trade or commerce among the several States or with 
foreign nations, the existence of such illegal contract, combination, 
or conspiracy in restraint of trade or of such attempt or conspiracy 
to monopolize, shall to the full extent to which the facts and issues 
of fact or law were htigated and to the full extent to which such fact, 
judgment, or decree would constitute in any other proceeding an 
estoppel as between the Government and such person, constitute 
as against such defendant conclusive evidence of the same facts and 
be conclusive as to the same issues of law in favor of any other party 
in any other proceeding brought under or involving the provisions 
of this act. 

"Sec. 13. In any civil proceeding begun under this act by the 
United States or the Attorney General or any district attorney 
thereof in which a judgment or decree interlocutory or final has been 
entered that the defendants, or any of them, have been guilty of 
conduct prohibited by section one, section two, or section three of 
this act, if it shall appear to the court by intervening petition of 
any other person or persons that such person or persons claims to 
have been injured by such conduct, such person or persons shall be 



534 Industrial Combinations and Trusts 

admitted as a party to the suit to establish such injury, if any, and 
the damages resulting therefrom, and such person or persons may 
have judgment and execution therefor or any other relief to the 
same extent as if an independent suit had been brought under sec- 
tion seven of this act. In the course of such proceeding the court 
may grant orders of attachment or may appoint a receiver or may 
take such other proceeding conformable to the usual practices in 
equity as to insure the satisfaction of any claim so presented and the 
protection of the petitioner's rights. Nothing done under this sec- 
tion shall be permitted to delay the final disposition of said prin- 
cipal proceeding in all other respects, and nothing contained in this 
section shall be taken to abridge the right of any person or persons 
to bring a separate and independent suit as provided in section seven 
of this act; but if any person proceeds both by intervening petition 
and by independent suit the court may order an election. 

''Sec. 14. Such intervening petition or an original suit for the 
same cause imder section seven of this Act shall not be barred by 
lapse of time, if begun within three years after final decree or judg- 
ment entered either in a civil or in a criminal proceeding brought 
by the United States or the Attorney General or any district attor- 
ney thereof establishing such violation by the defendant or defend- 
ants of section one, section two, or section three: Provided, That the 
claim on which such intervening petition or original suit is founded 
was not already so barred at the time of the passage of this act. 

^^Sec. 15. That whenever after the institution of proceedings in equity 
under section four of this act it shall appear to the court in any prelim- 
inary hearing that there is reason to believe, or upon final hearing the 
the court shall find, that any contract, combination in the form of trust 
or otherwise, or conspiracy was entered into, existed, or exists, which 
was, or is in any respect or to any extent, in restraint of trade or com- 
merce among the several States or with foreign nations, and that as a 
result thereof the defendants, or any of them, have the control of supply- 
ing the market with any machine, tool, or other article, whether raw ma- 
terial or manufactured, reasonably required in the manufacture or pro- 
duction of any other article or for general consumption and use, and that 
no adequate opportunity exists to immediately substitute another article 
therefor of equal utility, the court shall have power to make such order, 
by injunction or otherwise as it may deem necessary, as will secure to 
purchasers or users of such article full opportunity to continue to acquire 
or use the same upon payment of a reasonable compensation, to be fixed 
by the court in such order, until some other adequate substitute can be 



Methods of Dealing with the Trust Problem 535 

provided: Provided, however , That in so Jar as at the time of the appli- 
cation for such order, such machine, tool, or article is being supplied 
to any person under any contract, the amount of compensation therefor 
to he paid him under said order shall he that actually payahle in accord- 
ance with the terms of such contract, unless or until such contract is 
found or declared to he void or expires. 

"Sec. 16. That whenever in any proceedings under section four of 
this act any contract, comhination, or conspiracy has been adjudged 
illegal under section one or section two of this act the court before which 
such proceedings are pending shall have jurisdiction — 

" (a) To partition any property owned under any contract or by any 
comhination or pursuant to any conspiracy {and being the subject thereof) 
mentioned in section one and section two of this act in severalty among 
the owners thereof, or groups of the owners thereof, and if the owners 
include one or more corporations, among the several stockholders thereof, 
or among groups of the several stockholders thereof, all in proportion 
to their respective interests. 

" {h) If sales of such property are necessary or proper, either to pay 
encumbrances thereon or to recreate conditions in harmony with the 
law, to sell such property as a whole or in parcels; and the court may 
forbid the said owners, and if the said owners include one or more cor- 
porations, the stockholders thereof, from purchasing at such sales, and 
may prescribe the conditions on which any purchase may he made by 
any persons or corporations whatsoever. 

"(c) To make such restraining orders or prohibitions as may be 
necessary or proper to recreate conditions in harmony with the law, in- 
cluding prohibitions of any acts, conduct, methods, or devices which are 
enumerated herein as indicating unreasonable restraint. 

" {d) To declare void as against the defendants, or any of them, any 
contract entered into as a part of the contract, combination, or conspiracy 
found to he in restraint of trade. 

" The relief granted in this section shall be in addition to, and not 
exclusive of other relief permitted by law or by this act. 

"Sec. ly. That whenever a proceeding in equity has been instituted 
under section four of this act, any person who shall he injured or is 
threatened with injury in his business or property by any other person 
or corporation by reason of anything forbidden or declared to he un- 
lawful by this act, and any State of the United States, may at any time 
intervene in said suit to protect his interests, or if the intervener be a 
State, the interests of the citizens of such State, and may, after final 
decree in said case, petition said court for protection or redress in case 



536 Industrial Combinations and Trusts 

of any violatiojt of said decree, and the court shall have power to take 
such action as may he appropriate in the premises. 

"Sec. i8. Whencoer in a proceeding under section four of this act 
it shall he alleged that the defendants, or any of them, have entered into 
a contract, comhination in the form of trust or otherwise, or conspiracy, 
or that a conspiracy between them, or any of them, existed or exists which 
was or is, in any respect or to any extent, in restraint of trade or com,- 
merce among the several States or with foreign stations, no department 
or official of the United States shall, unless and until such allegation 
shall he fouftd on final decree to he unfounded, enter into any contract 
with any such defendant for the purchase or supply of any article, nor 
purchase from any such defendant or any other person any article manu- 
factured by any such defendant or any subsidiary or controlled company, 
association, or firm except so far as required so to do by some existing 
contract, unless— 

"First. The article so manifactured is reasonably necessary for the 
purposes of the Government, and no adequate opportunity exists to 
substitute another article of equal utility at a reasonable price; and 

"Second. The officer authorized to make contracts or purchases of 
that nature shall, after fidl investigation, and before such contract or 
purchase is made, have certified in writing to the facts set forth in the 
preceding paragraph and have filed with or mailed to the Department 
of Justice and the Commissioner of Corporations copies of such cer- 
tificate. 

"Sec. ig. Any patent used in violation of this act to restrain trade 
or commerce among the several States or with foreign nations, or used in 
violation of this act in connection with any cojitract, conspiracy, or com- 
bination in restraint of such trade or commerce, shall be forfeited to the 
United States and anmdled, and may he condemned by like proceedings 
as is provided by law for the forfeiture, seizure, a7ui condemnation of 
property imported into the United States contrary to law. 

"Whenever, in any proceeding brought under section four of this act, 
it shall appear that any patent granted by the United States has been so 
used to restrain trade or commerce among the several States or with 
foreign nations, or so used in connection with any contract, conspiracy, 
or combination in restraint of such trade or commerce, the court shall 
have jurisdiction to declare such patent forfeited to the United States 
and anmdled upon petition therefor didy filed in said cause, and the 
Attorney General shall forthwith file such petition praying for such for- 
feiture, afid when the defendants affected by such petitio^i shall have 
been duly notified of the filing of the same proceedings thereon shall 



Methods of Dealing with the Trust Problem 537 

be given precedence over others and in every way expedited and he as- 
signed for hearing at the earliest practicable day^ 

Exhibit 3 

senator JOHN sharp WILLIAMS ^ 
A BILL 

To prescribe the conditions under which corporations may en- 
gage in interstate commerce and to provide penalties for other- 
wise engaging in the same. 

Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled, That no corporation 
shall engage in commerce between the States or Territories or in the 
District of Columbia by the purchase, sale, or consignment of any 
article of commerce, or otherwise, directly or indirectly — 

First. Unless it is organized under laws with a charter that — 

(a) State the business in which it is authorized to engage and 
the properties it is authorized to acquire; 

(b) Provide that it shall have only such powers as are incidental 
to such business, and shall not have any power to hold the stock of 
any other corporation or association, to do any act or thing in re- 
straint of trade, or to do anything outside of the State of its incor- 
poration which it is not permitted to do therein; 

(c) Provide that all its stockholders shall have an equal right 
to vote according to the number of shares held by them, respec- 
tively, at all meetings and for all directors, subject to any general 
limitation on the number of votes that may be cast by a single 
stockholder; 

(d) Provide that no other corporation, association, or partner- 
ship shall have any vote or voice, directly or indirectly, in its af- 
fairs, and that no person representing, directly or indirectly, any 
competing business as owner, stockholder, officer, employee, or 
agent thereof or otherwise shall have any such vote or voice, di- 
rectly or indirectly in its affairs or be eligible as a director or officer 
thereof; 

(e) Provide that its capital stock shall be fully paid or payable, 
and permit it to be paid in property or services only when the value 
of such property or services has been determined according to the 

1 Bill introduced by Senator John Sharp Williams Jan. 23, 191 2. Senate 4747, 
62nd Cong. 2nd Sess. 1911-1912. 



538 Industrial Combinations and Trusts 

fact upon competent and specific proof under oath filed in a desig- 
nated public office; 

(f) Limit its surplus at any time to fifty per centum of its out- 
standing capital stock and its indebtedness at any time to not more 
than its outstanding capital stock and surplus; 

(g) Provide that such corporation shall by an amendment of 
its charter be subject to and comply mth, and, if necessary, shall 
accept any requirement that may be made by the State of its in- 
corporation and with any requirement that may be imposed by 
Congress as a condition of its right to engage in interstate com- 
merce. 

Second. Unless it is conducted and managed in conformity with 
the said provisions and limitations, and is organized under the laws 
of a State, Territory, or District in which its executive officers are 
located and its directors' meetings regularly held. 

Third. If it, directly or indirectly, of itself or in connection with 
others destroys or seeks unfairly to stifle fair competition in any 
part of the United States in the manufacture, production, mining, 
purchase, sale, or transportation of any articles of commerce not 
the subject of any patent, copyright, or trademark held by it either 
by making or effecting exclusive contracts, rights, or privileges 
relating thereto, by restricting its customers or other persons with 
regard to price, territory, or otherwise, in freely buying, selling, 
or transporting any such article, by securing the monopoly or con- 
trol of raw material or sources of supply or of any business con- 
nected therewith, jDy temporarily or locally reducing prices with 
intent to stifle competition, by accepting rebates, or by any other 
act, device, or course of business that is unfair and tends to secure 
an unfair advantage and unreasonably and unfairly to destroy 
competition. 

Sec. 2. That every contract made in violation of this Act shall 
be void, and no corporation or association shall bring or maintain 
any suit or proceeding in any court of the United States unless it 
is organized, conducted, and managed as required by section one, 
nor shall this provision prevent the removal of any such suit or 
proceeding to such courts where such defense may be available 
to the defendant. 

Sec. 3. That the prohibitions of section one and section two 
shall apply to any association membership in which is represented 
by shares, and the word "association" used in this Act shall include 
any joint-stock company, business, trust, estate, or any form of 



Methods of Dealing with the Trust Problem 539 

association used for business purposes; but said prohibitions shall 
not apply to any corporation or association not engaged in business 
for profit or engaged exclusively in any one or more of the following 
businesses: Education; a railroad or other common or public 
carrier of property or persons or messages; banking; insurance; the 
supply of water, light, heat, or power; or engaged exclusively and 
independently in any business or businesses the substantial bulk 
of which is carried on in foreign countries or exclusively in any one 
State or Territory or District, and which does not involve the 
transmission of goods from one State or Territory or District to 
another, nor the purchase, sale, or consignment of articles com- 
monly the subject of commerce between the States and Territories, 
and actually intended for or becoming the subject of such 
commerce. 

Sec. 4. That no person or persons shall form, operate, or act as 
or for a corporation or association for the purpose or with the ef- 
fect of violating this Act, or conspire thereto and of themselves or 
by coconspirator do any act or thing to effect such conspiracy. 

Sec. 5. That every corporation, association, trust, or person 
violating this Act shall be subject, upon conviction thereof, in case 
of a corporation or association, to a fine not exceeding ten per cen- 
tum of its capital stock, or to a perpetual injunction against engag- 
ing in interstate commerce, or both, and in the case of a person, to 
a fine not exceeding ten thousand dollars for each such violation, 
and, if the violation is willful with intent to defraud or to create a 
monopoly or unfairly to stifle competition, to such fine and imprison- 
ment for not exceeding five years. 

Sec. 6. That the Act of February eleventh, nineteen hundred 
and three, relative to the expedition of certain suits in equity, and 
sections four and five of the Act of July second, eighteen hundred 
and ninety, known as the Sherman An ti- trust Act, shall apply to 
all proceedings and suits in equity under this Act. 

Sec. 7. That the purchase, sale, or consignment of any article in- 
tended to become and actually becoming an article of commerce 
between the States or Territories shall be deemed to be an Act of 
engaging in such commerce under this Act. 

Sec. 8. That the foregoing provisions of this Act shall take effect 
January first, nineteen hundred and thirteen, but shall not apply 
to corporations or associations having a capital stock and surplus 
under ten million dollars until January first, nineteen hundred and 
fourteen. 



540 LsDUSTRLA-L COMBINATIONS ANT> TrUSTS 

Sec. 9. That any corporation or association organized, conducted, 
and managed as required by section one shall, after the passage of 
this Act, be entitled to engage in commerce between the States 
and Territories, and to carr\' on its authorized business relative to 
such commerce in any part of the United States, subject to the pro- 
visions of this Act and to all present laws of the United States and 
to future Acts of Congress, and to the general laws and taxing 
power of any State, Territory, or District in which it may do busi- 
ness. 

Exhibit 4 

SENATOR .\LBERT B. CUMMINS ^ 
A BILL 

To further regulate commerce among the States and -^dth foreign 
nations, to create a Trade Commission, and for other purposes. 

Be it enacted by the Senate and House of Representutkes of the 
United States of America in Congress assembled^ That nothing con- 
tained in this Act shall be construed to make lawful any contract, 
combination, conspiracy, any act of monopolizing, any monopoly, 
any attempt to monopolize, or any practice, custom, or thing made 
unla\slul by either section one or section two of an Act entitled 
"An Act to protect trade and commerce against unlawful restraints 
and monopohes," approved July second, eighteen himdred and 
ninety. The intent of this Act is to create and maintain competitive 
conditions in commerce among the States and with foreign nations, 
and it shall be construed liberally to accomphsh the said intent. 

Sec. 2. That the words enumerated in this section shall have the 
following meaning when found in this Act, to wit: 

''Commerce'-' means commerce among the States or with foreign 
nations; that is to say, such conmierce as, under the Constitution, 
Congress has the power to regulate. 

''Corporation'" means a body incorporated under law. including 
joint-stock associations and all other associations ha\ing shares 
of capital or capital stock. 

"Person" means any indi\'idual or company of indi\'iduals, 
however associated together, except those falling within the defini- 
tion of corporation. 

^ Bill introduced by Senator Cummins. Senate 5451, 62nd Congress 2nd. 
Session. 1911-1912. 



Methods of Dealing with the Trust Problem 541 

^'Commission" means the Trade Commission herein created. 

"Capital" means not only the capital owned by a corporation 
or person but also capital borrowed in any form whatsoever or 
credit used for business purposes. 

The Act shall not apply to corporations having less than five 
milKons of dollars of capital nor to persons or corporations engaged 
in the business of common carriers. 

Sec. 3. That no corporation organized after the first day of 
March, nineteen hundred and twelve, or whose articles of incorpora- . 
tion or association are amended after that date, nor any person, 
shall engage in commerce employing such extent of capital as would, 
by reason of such extent, destroy or prevent substantially compet- 
itive conditions in the general field of industry in which such cor- 
poration is engaged; nor shall any corporation organized prior to 
the first day of March, nineteen hundred and twelve, engage in 
commerce after the first day of January, nineteen hundred and 
fourteen, employing such extent of capital as would, by reason of 
such extent, destroy or prevent substantially competitive conditions 
in the general field of industry in which such corporation is engaged. 

Sec. 4. That no corporation created or whose articles of incor- 
poration or association are amended after March first, nineteen 
hundred and twelve, shall engage in commerce upon whose board 
of directors or other managing board, or among whose ofiicers there 
is any person who is a member of the board of directors or other 
managing board, or among the ofiicers of any other corporation 
carrying on a business of the same general character, and which 
therefore ought to be competitive, or who is himself, or with 
associates, carrying on any such competitive business. This section 
shall apply to corporations organized prior to March first, nineteen 
hundred and twelve, from and after July first, nineteen hundred 
and thirteen. If dummy or nominal directors or ofiices are placed 
upon the board or among the officers who in fact represent and are 
controlled by a person or persons who are themselves within this 
section, it shall be held that the persons so representing or control- 
ling are on the board or among the officers. 

Sec. 5. That no corporation organized, or whose articles of in- 
corporation or association are amended after March first, nineteen 
hundred and twelve, shall engage in commerce which holds, owns, 
or controls, directly or indirectly, any share or shares of capital 
stock or any other means of control of any other corporation; 
and no corporation theretofore organized shall engage in commerce 



542 Industrial Combinations and Trusts 

after the first day of January, nineteen hundred and fourteen, 
which then or thereafter holds, owns, or controls, directly or indi- 
rectly, any share or shares of capital stock or other means of control 
of any other corporation: Provided, That any such corporation 
may for a period of three months o^ti or hold shares of stock in 
another corporation if they have been taken in satisfaction or 
partial satisfaction or security for bona fide indebtedness. 

Sec. 6. That no corporation shall, after January first, nineteen 
hundred and thirteen, engage in commerce upon whose board of 
directors or other managing board, or among whose officers, is 
any person who is a member of the board of directors, or other 
managing board, or among the officers of any institution carrying 
on the business of banking, whether such institution is incorporated 
or unincorporated: Provided, however, That this section shall ap- 
ply only to corporations employing a capital of ten millions of 
dollars or more. The use of dummy or nominal directors or officers 
shall have the consequences prescribed in section four. 

Sec. 7. That no corporation shall, after January first, nineteen 
hundred and thirteen, engage in commerce, more than ten per 
centum of w^hose capital stock or other means of control is oTvmed 
or held by any person or corporation which, not being engaged in 
commerce, also owns or holds ten per centum or more of the capital 
stock or other means of control of any other corporation engaged in 
commerce and doing a competitive business: ProrzJe^, however, That 
if the person or corporation not engaged in commerce acquires, 
owns, or holds such stock or other means of control without the 
assent, connivance, or participation of the officers or directors of 
the corporation engaged in commerce, then the prohibition of this 
section shall not apply; but, in that event, the shares of capital 
stock so acquired, owned, or held, shall have no voting power in 
control or management. 

Sec. 8. That no person or corporation shall, after the first day 
of January, nineteen hundred and fourteen, engage in commerce 
which owns or controls, either directly or indirectly, or which 
operates a line of transportation, or which carries on the business 
of a common carrier, and which at the same time carries on any 
producing or manufacturing business: Provided, That the aforesaid 
regulation shall not be held to include the ordinary or necessary 
switching facilities properly appurtenant to a producing or man- 
ufacturing business. Nor shall any person or corporation, after 
the date last aforesaid, engage in commerce which receives, directly 



Methods of Dealing with the Trust Problem 543 

or indirectly, from any common carrier any part of the freight 
rate or charge made and collected for the transportation of freight. 

Sec. 9. That no person or corporation shall engage in commerce 
which for a period of more than two months regularly and generally 
sells the product or products in which it deals, or which it manu- 
factures, below actual cost for the purpose of inflicting injury 
upon a competitor, or for the purpose of compelling such competitor 
to cease carrying on business; and no person or corporation shall 
engage in commerce whose business it is to manufacture or sell 
commodities, unless he or it, as the case may be, shall sell or offer 
to sell a given commodity to all purchasers for substantially like 
deliveries at the same price: Provided, however, That if the price 
includes the cost of transportation from the place of sale the selling 
price may vary according to the cost of transportation: And pro- 
vided further , That this section shall not be held to require the same 
price for carload lots and less than carload lots. 

Sec. 10. That no corporation organized after March first, 
nineteen hundred and twelve, shall engage in commerce if the par 
of its capital stock or shares, and secured indebtedness or indebted- 
ness other than current indebtedness, amount in the aggregate to 
a sum more than ten per centum in excess of the fair and reasonable 
value of the property owned and held by such corporation; and no 
corporation organized prior to the first day of March, nineteen 
hundred and twelve, shall engage in commerce if hereafter it issues 
capital stock or shares or any form of capitalization the nominal 
or par value of which exceeds by more than ten per centum the 
fair and reasonable value of the property received by the corpora- 
tion therefor: Provided, however, That this section shall not apply 
to those instances in which, through losses sustained in business, 
the value of the property of a corporation may fall below the aggre- 
gate amount of such capital stock or shares and indebtedness. 

Sec. II. That no corporation organized after March first, nine- 
teen hundred and twelve, shall engage in commerce which has paid 
either in money or in the issuance and delivery of stocks or bonds, 
or otherwise, for services in promoting or financing, or for any other 
purpose connected with the organization and capitalization of the 
corporation, more than the following, to wit : 

For a capitaHzation of fifty milUons of dollars or more, the sum 
of one per centum upon the capitaHzation; but in no event to exceed 
one per centum upon one hundred millions of dollars; 

For a capitalization of twenty millions of dollars or more, but less 



544 Industrial Combinations and Trusts 

than fifty millions of dollars, the sum of two per centmn upon the 
capitalization; but in no event to exceed one per centum upon 
fifty millions of dollars; 

For a capitalization of less than twenty millions of dollars, the 
sum of three per centum upon the capitahzation ; but in no event 
to exceed two per centum upon twenty milhons of dollars. 

Sec. 12. That there is hereby created a body w^hich shall be 
known as "The Trade Commission." It shall be composed of three 
members. It shall be appointed by the President, by and with 
the advice and consent of the Senate. The terms of their ofl&ces 
shall be nine years, and until their successors are appointed and 
qualified: Provided, That of the first three appointees the President 
shall designate one who shall hold his office for three years and one 
for six years, and at the expiration of each of such shorter terms 
the appointment shall be made for nine years. Vacancies, however, 
occurring shall be filled by like appointment and confirmation for 
the unexpired term. Each of said commissioners shall receive an 
annual salary of ten thousand dollars. The office of the commission 
is hereby established at Washington, District of Columbia, but 
the commission may hold meetings when convenient or necessary 
elsewhere. The duties and powers of said commission are herein- 
after prescribed. 

Sec. 13. That the Bureau of Corporations is hereby transferred 
to and merged in the commission, and all officers and employees of 
the Bureau of Corporations shall hereafter be the officers and em- 
ployees of the commission, and w^Xh the transfer there shall pass 
to the possession of the commission all the records and papers of said 
bureau, and the commission shall hereafter exercise all the powers 
and perform all the duties heretofore conferred or imposed upon 
the said bureau: Provided, however, That all reports now" provided 
by law to be made by the bureau to the President shall hereafter 
be made to Congress or as directed by either House thereof. 

All appropriations heretofore made for the support and mainte- 
nance of the bureau shall stand as appropriations to be expended 
by the commission in the exercise of the powers and performance 
of the duties w^hich the law, prior to the passage of this Act, con- 
ferred or imposed upon said bureau. 

Sec. 14. That in addition to the officers and employees now pro- 
vided for the Bureau of Corporations the said commission shall 
have the power to employ such secretaries, clerks, inspectors, ex- 
aminers, experts, messengers, and other assistants as from time to 



Methods or Dealing with the Trust Problem 545 

time may be necessary, and as may be appropriated for by Congress. 
With the exception of one secretary, all the foregoing employees 
shall be a part of the classified civil service, and shall enter the 
service under such rules and regulations as may be prescribed by 
the commission hereby created and by the Civil Service Commis- 
sion. The commission shall also have the power to rent suitable 
rooms for the conduct of its work, paying therefor such rental as 
may be provided for by appropriation. 

Sec. 15. That it shall be the duty of the commission to carefully 
inquire into the organization of all corporations included within this 
Act and which are engaged or which propose to engage in commerce 
and into the conduct of the business of all corporations or persons 
engaged in commerce; and to that end it shall have the power to 
subpoena and examine under oath individuals. No individual may 
claim the privilege of refusing to answer for the reason that his 
answer would or might incriminate him; but his answer, if the claim 
is made at the time, shall not be used against him in any criminal 
proceeding; but neither any other person nor the corporation with 
which such individual is connected, whether as a stockholder, officer 
or agent, employee, creditor, or otherwise, shall be entitled to any 
immunity because of any disclosure so made. 

The commission shall also have the power to require the produc- 
tion for examination of all documents, contracts, memoranda, or 
other papers relating to the commerce in which a person or corpora- 
tion under inquiry is engaged. If the commission shall be of the 
opinion that any such examination or inquiry shows that there has 
been a violation of any law of the United States respecting the regu- 
lation of commerce, it shall be its duty to lay before the Department 
of Justice the information it has acquired, to the end that such pro- 
ceedings as the law requires may be taken by the department: Pro- 
vided, however, That this section shall not apply to, nor shall the 
commission have any duty to perform under or with respect to, 
common carriers embraced within the Act commonly known as the 
interstate-commerce law, and the amendments thereto: And provided 
further, That this section shall not be construed to conflict with the 
specific powers and duties conferred or imposed upon the commis- 
sion with respect to sections three, nine, and ten of this Act. 

Sec. 16. That the commission shall have the power, and it shall 
be its duty, to determine whether any person or corporation is vio- 
lating either section three of this Act, or is violating sections one or 
two of the Act entitled "An Act to protect trade and commerce 



546 Industrial Combinations and Trusts 

against unlawful restraints and monopolies," in so far only as con- 
cerns the mere extent of capital employed; but the power conferred 
in this section shall not extend to the manner, usages, customs, or 
practices in the operation or conduct of a business. 

The commission may prescribe rules for the inquiry or examination 
authorized in this section, which shall include notice and hearing. 
In making such inquiry' and in reaching a conclusion thereunder the 
commission shall be guided and controlled by the rules estabHshed 
herein. Wlien any such inquir}^ is completed the commission shall 
determine whether there has been or is a violation of section three 
of this Act, or whether there has been or is a \dolation of sections one 
or two of the said Act entitled "An Act to protect trade and com- 
merce against unlawful restraints and monopohes," in the respect, 
and in the respect only, hereinbefore set forth, and it shall enter its 
determination in a record kept for that purpose. If the determina- 
tion is that there has been or is a \iolation, as aforesaid, then unless 
the \dolation ceases -within a period to be fixed by the commission, 
the commission may either submit all its information -^ith its de- 
termination thereon to the Department of Justice for such action 
as that department may la^-fully take, or it may institute in the 
name of the United States such suit or suits in equity as are now 
authorized by the United States in the said Act of eighteen hundred 
and ninety, or which are authorized by this Act to be brought in 
the name of the United States; and in any suit or suits so instituted 
by the commission in the name of the United States the jurisdiction 
of the courts and the rights and remedies shall be the same as though 
the suit or suits had been instituted in the name of the United States 
by or under the direction of the Department of Justice; and in any 
such suit, whether brought by direction of the Department of Jus- 
tice or by direction of the commission, the determination of the 
commission shall have the same effect as though made by Congress 
itself. 

If, however, the determination of the commission is that there 
has been and is no violation of section three of this Act and no viola- 
tion of sections one or two of the said Act of eighteen hundred and 
ninety in the respect aforesaid, then no suit or action of either civil 
or criminal nature shall be brought or maintained by the United 
States alleging a \'iolation of section three of this Act or of sections 
one or two of the said Act of eighteen hundred and ninety in the 
respect aforesaid, against which the determination of the commis- 
sion is entered. 



Methods of Dealing with the Trust Problem 547 

Sec. 17. That the commission shall have the power and it shall 
be its duty to determine whether any corporation engaged in com- 
merce is in violation of sections nine and ten of this Act, and may 
prescribe rules for the inquiry, which rules shall include notice and 
hearing, and in making the inquiry the commission shall be guided 
and controlled by the rule prescribed by Congress in said sections, 
and when completed it shall enter its determination in a record kept 
for that purpose. If the determination is that the corporation under 
examination is in violation of the said sections or either of them, 
and unless the violation ceases within a period to be fixed by the com- 
mission, then the commission may either submit its information and 
determination to the Department of Justice for such action as that 
department may take, or it may bring, in the name of the United 
States, such suit in equity as this Act authorizes to be brought in 
the name of the United States by or under the direction of the Depart- 
ment of Justice; and the jurisdiction of the courts, the rights, pro- 
cedure, and remedies shall be the same as though the suit were in- 
stituted in the name of the United States by or under the direction 
of the Department of Justice; and in any such suit, whether brought 
by direction of the Department of Justice or by direction of the 
commission, the determination of the commission shall have the 
same effect as though made by Congress itself. 

If the determination of the commission shall be against the viola- 
tion of either of said sections nine and ten, then no action, either 
civil or criminal, shall be brought or maintained by the United States 
alleging the violation against which the determination of the commis- 
sion is entered. 

Sec. 18. That every person or corporation violating any of the 
provisions of this Act, and every person who causes or who assists in 
causing any corporation to violate any of the provisions of this Act, 
shall be deemed guilty of a misdemeanor, and on conviction thereof 
shall be punished by a fine not exceeding five thousand dollars or 
by imprisonment not exceeding one year or both. 

Sec. 19. That all the provisions of section four of the Act en- 
titled "An Act to protect trade and commerce against unlawful 
restraints and monopolies," approved July second, eighteen hundred 
and ninety, and all provisions of law relating to suits brought there- 
under shall apply to this Act and to the violations thereof. 



548 Industrial Combinations and Trusts 

Exhibit 5 

judge elbert h. gary ^ 

federal license act. 

Section i. No corporation created under the laws of any State or 
Territory of the United States or the District of Columbia, or any 
foreign sovereignty, and having capital stock or assets of ten milhon 
dollars or more, shall engage in trade or commerce between the 
United States and foreign nations, or am.ong the several States, or 
between a State or States and places subject to the jurisdiction of 
the United States, or between any Territories of the United States, 
or in and between such Territory or Territories and any State or 
States and the District of Columbia or places under the jurisdiction 
of the United States, or between the District of Columbia and any 
State or States and foreign nations or places under the jurisdiction 
of the United States, until such corporation shall comply with the 
requirements of this act, and shall obtain the certificate of Hcense 
hereinafter mentioned: Provided, however, That the provisions of this 
act shall not apply to any common carrier mentioned in section one 
of the act entitled "An act to regulate commerce," approved Feb- 
ruary fourth, eighteen hundred and eighty-seven, as amended: Afid 
provided further, That corporations heretofore organized and engaged 
in such business shall have one year from the date of the passage of 
this act to comply therewith and to obtain a license. Any corpora- 
tion which has a capital stock or assets of less than ten million dollars, 
which is engaged or intends to engage in interstate or foreign trade 
or commerce as aforesaid, m.ay voluntarily comply with the provisions 
of this act by making application for a license. So long as it retains 
such license any such corporation shall be subject to all the provisions 
of this act. 

Sec. 2. In order to comply with the requirements of this act and 
to obtain the certificate of Hcense hereinafter mentioned, the cor- 
poration applying therefor shall make an application for such certifi- 
cate of license, which appKcation shall specifically set forth (first) 
the name of the corporation, which name shall be subject to the 

1 This bill was drafted by Judge Gary and submitted to the Senate Commit- 
tee on Interstate Commerce at the request of that body. Cf . Hearings before the 
Senate Committee on Interstate Commerce on the Control of Corporations, 
Persons and Firms engaged in Interstate Commerce. 62nd Cong. 2nd Sess. 
1911-1912, pp. 2407-2412. 



Methods of Dealing with the Trust Problem 549 

approval of the Corporation Commission; (second) the State, Terri- 
tory, or other sovereignty under the laws of which the corporation 
was created, with the date of its creation and the place in which the 
principal business office of the corporation is situated, designating 
the State, Territory, or district, and county and city, town, or village; 
(third) the objects for which the corporation was established, stating 
the general nature of the interstate or foreign trade or commerce 
which it intends to carry on; (fourth) the amount of the authorized 
capital stock of the corporation, the amount of capital stock issued 
and outstanding, and whether or not any part of the capital stock 
was contributed in property other than money, and, if so, the amount 
of such part; (fifth) the number of shares into which the capital stock 
is divided and the par value of such shares; whether or not such 
shares are divided into classes, and, if so, the amount of each class 
and a statement of the preferential and other special rights of each 
class; (sixth) the number of directors and, if they are divided into 
two or more classes, the number of directors constituting each class 
and the terms of ofi&ce of each class, respectively, and the names and 
post-office addresses of the directors and executive officers of the 
corporation at the time of the making of such application; (seventh) 
the period limited for the duration of the corporation; (eighth) any 
provision defining, limiting, and regulating the powers of the cor- 
poration, its officers, directors, or stockholders, or of any class or 
classes of stockholders; (ninth) the fact that the application is made 
to enable such corporation to avail itself of the advantages of this 
act; (tenth) a copy of the certificate of incorporation or charter of 
the corporation. Said application shall also contain such other in- 
formation as may be required by the Corporation Commission. 

The application shall be signed in the name of said corporation by 
its president under authority of its board of directors, and the cor- 
porate seal shall be affixed thereto and attested by its secretary, and 
the statements made therein shall be sworn to by the president and 
treasurer; and the application so executed and sworn to shall be 
transmitted to the Corporation Commission. 

Sec. 3. It shall be the duty of the Corporation Commission to 
examine such application and to determine whether it conforms to 
the requirements of this act and contains any provision that is con- 
trary to any other act of Congress, and whether the name proposed 
to be adopted by such corporation is the same as or so nearly re- 
sembles the name of any other corporation already licensed under 
this act as to be calculated to deceive; and if the organization and 



550 Industrial Combinations and Trusts 

business of the said corporation do not involve any unlawful restraint 
of trade and commerce among the several States and Territories and 
foreign nations, and do not constitute a monopoly or an attempt to 
monopolize said trade and commerce, the said appUcation shall be 
filed and recorded in a book to be kept for that purpose; and upon 
payment of the Hcense fees hereinafter specified, said commission 
shall issue a copy of said application so filed, together with a certifi- 
cate of the commission duly authenticated that the corporation has 
compHed with all the provisions of law required to be complied with, 
and has become and is authorized to engage in interstate and foreign 
commerce as specified in its application. And from the date of such 
certificate the said corporation as such and in the name designated 
shall have the right to engage in interstate and foreign commerce, as 
aforesaid, unless said license is revoked as hereinafter provided for 
cause shown. 

Sec. 4. Should the Corporation Commission refuse to grant a H- 
cense to any corporation under the terms of this act, said corporation 
may, upon such refusal, bring a suit against the said Corporation 
Commission before the Court of Commerce or any district court of 
the United States, which said courts are hereby given jurisdiction 
to review the action of said Corporation Commission, and if it shall 
appear to the court that said corporation has comphed with all the 
terms and conditions of this act, and that the name of said corpora- 
tion is not the same as the name of any other corporation engaged 
in the same or similar business and already licensed under this act, or 
so nearly resembling the same as to be calculated to deceive, and if in 
the judgment of such court the organization and business of said cor- 
poration do not involve any unlawful restraint of trade and com- 
merce among the several States, Territories, and foreign nations, and 
do not constitute a monopoly, or an attempt to monopoHze said 
trade and commerce, and are not in violation of any other act of Con- 
gress, the court shall make an order directing the said Corporation 
Conmiission to issue the said license pursuant to law. The said pro- 
ceedings shall constitute an action in equity and be tried in the same 
manner as other actions in equity, and an appeal shall He from the 
judgment of said court to the Supreme Court of the United States, 
provided such appeal be taken within thirty days from the entry of 
the judgment. Upon any refusal to grant a license, if the corporation 
applying therefor shall thereafter and within thirty days institute 
a suit as aforesaid, the court shall have authority pending the litiga- 
tion to enter an order permitting the said corporation to engage and 



Methods of Dealing with the Trust Problem 551 

continue in such commerce pending the final decision on such ap- 
plication. 

Sec. 5. If any corporation which has obtained and maintained a 
license under this act shall subsequently, pursuant to the laws of the 
place of its incorporation, change its name or amend its certificate of 
incorporation, it shall immediately file with the Corporation Commis- 
sion a certified copy of the amended certificate or other document 
evidencing such change. Thereupon the commission shall issue an 
amended license to conform to the change of name or amendment of 
the certificate of incorporation : Provided, That the new name adopted 
by said corporation shall not be the same as the name of any other 
corporation engaged in the same or similar business and already 
Hcensed under this act, or so nearly resembling the same as in the 
opinion of the Corporation Commission to be calculated to deceive, 
and the amendment to the certificate of incorporation shall not con- 
travene any of the provisions of this act. 

Sec. 6. No corporation licensed pursuant to this act shall carry on 
the business of discounting bills, notes, or other evidences of debt, or 
receiving deposits or buying and selling bills of exchange, nor shall it 
issue bills, notes, or other evidences of debt for circulation as money. 

Sec. 7. As a condition of the issuance of any license imder this act, 
the Corporation Commission shall require every corporation here- 
after organized applying for hcense hereunder to estabhsh to the 
satisfaction of the commission the fact that no stock of the said cor- 
poration was issued except for cash or for property equal in value to 
the par value of the stock thus issued, and in determining the value of 
any property in payment for which stock has been issued, the Cor- 
poration Commission shall not be bound by the decision of the board 
of directors of the said corporation. To enable the Corporation 
Commission to ascertain the reasonable value of the said property it 
shall cause the said corporation to file with the commission a state- 
ment in writing, signed and sworn to by a majority of the members of 
the board of directors, setting forth: (a) A full description of the prop- 
erty in payment for which the stock was issued; (b) the number of 
shares issued in payment for said property and whether or not such 
shares have a par value, and if so, the aggregate par value of the 
stock so issued, or if not, then the number of shares so issued; (c) the 
names and addresses of the vendors of the property purchased or 
acquired by the corporation with the stock so issued and whether or 
not they, or any of them, were ofiicers or directors of the corporation, 
and whether or not they, or any of them, were, to the knowledge of 



552 Industrial Combinations and Trusts 

the signers of the statement, owners m their o^tl name or otherwise 
of any shares of stock in the corporation, and if so, of how many of 
such shares; (d) the terms of any agreements, verbal or written, for 
the transfer of such property to the corporation, and the parties to 
all such agreements, and particularly the amount paid as purchase 
money in cash or shares for such property, specifpng any amount 
payable for good ^iH and any and all amounts paid to each vendor; 
and in case any Y,Titten contract has been made ^dth said vendors, 
or any of them, a sworn copy thereof shall be filed ^ith such state- 
ment; (e) in case the vendors of such property, or any of it, are di- 
rectors of the corporation or o-^mers of" any of its stock in their own 
names or otherviise, a statement of the prices paid by them for the 
property so sold or transferred to the corporation and copies of all 
contracts by vrhich the said vendors acquired the ownership or the 
control thereof. In case the stock issued in payment for said prop- 
erty has a par value, there shall be filed -^ith such statement -^ith the 
Corporation Commission an appraisement of the value of said prop- 
erty made by two disinterested appraisers, approved in writing by 
the Corporation Commission; and the commission may in its discre- 
tion appoint one or more other appraisers to make valuations on 
such property and shall fix the compensation of such appraisers, 
which shall be paid by the corporation before the issuance of any 
hcense ; and no license shall be issued to any corporation whose stock 
ha\dng a par value shall have been issued in pa}Tnent of property 
purchased or acquired by the corporation to an amount at such par 
value in excess of the value of the said property as approved by the 
Corporation Commission after such appraisement: Provided, however, 
That the requirements of this section shall not apply to any corpora- 
tion organized prior to the passage of this act. 

Sec. 8. Xo corporation Hcensed hereunder and whose business 
constitutes, according to the estimate of the commission, more than 
fifty per centum of the total business of the same character in the 
United States shall purchase the property and business of any other 
corporation or person engaged in a similar competitive business in the 
United States, unless the said purchasing corporation shall first apply 
to the Corporation Commission, stating the nature of the business 
so to be purchased, the price to be paid therefor, and such other facts 
as may be required by the commission. It shall thereupon be the 
duty of the Corporation Commission to inquire whether the said 
facts are true, and whether the purchase of said property would tend 
to create a monopoly in the purchasing corporation or to und^oly 



Methods of Dealing with the Trust Problems 553 

restrain trade and commerce among the States and with foreign 
nations in violation of any law of Congress; and if, in the opinion of 
the commission, such purchase would tend to create a monopoly in 
the purchasing corporation or to unduly restrain trade and commerce 
as aforesaid, then the commission shall refuse permission to purchase 
said property and business, and any purchase notwithstanding said 
refusal shall subject the said corporation to a forfeiture of its license 
as hereinafter provided. 

Sec. 9. Every corporation licensed pursuant to this act shall file 
in the Bureau of Corporations within sixty days after the first day of 
January, or the first day of July in each year, or at such other times 
as the Corporation Commission may prescribe, a report on the con- 
dition of said corporation at the close of business on the preceding 
thirty-first day of December, or the thirtieth day of June, as the 
case may be, in such form and setting forth such details as the Cor- 
poration Commission shall from time to time prescribe, which report 
shall be verified by oath or affirmation of the president or treasurer of 
such corporation and attested by the signatures of at least three of 
the directors. The Corporation Commission shall also have power 
to call for special reports from any particular corporation whenever, 
in its judgment, the same shall be necessary in order to secure a full 
and complete knowledge of the condition of said corporation. In 
addition to such reports, every corporation organized under the act 
shall report to the Corporation Commission within ten days after 
declaring any dividend the amount of such dividend and the class or 
classes of stock on which it is payable, and a copy of the statement 
of the financial condition of the corporation showing the amount of 
the net earnings of such corporation on hand at the time of declaring 
such dividends; which report shall be attested by the president, vice 
president, or treasurer of such corporation. 

Every corporation which shall fail to make and transmit any re- 
port required by this section shall be subject to a penalty of one 
hundred dollars for each day after the period therein mentioned 
that it continues in default in the filing of such report, said penalty 
to be collected by the Corporation Commission; but the Corpora- 
tion Commission may for good cause shown extend the time for 
fifing such reports without penalty for a period not exceeding sixty 
days. All sums of money collected for penalties under this section 
shall be paid into the Treasury of the United States. 

Sec. 10. Any corporation licensed hereunder which seeks to in- 
crease the amount of its capital stock shall first obtain the consent 



554 Industrial Combinations and Trusts 

of the Corporation Commission to any such increase, and, as a 
condition of obtaining such consent, shall file with the Corporation 
Commission a statement in such form as may be prescribed by the 
commission, setting forth the circumstances of such intended in- 
crease, and if such increase is intended for the purpose of acquiring 
additional property, the said statement shall set forth the facts 
specified in the statements required by section nine hereof. Any 
increase of capital stock of a corporation licensed hereunder with- 
out the filing of the statements and the obtaining of the consent re- 
quired under this section shall subject the said corporation to a 
forfeiture of its Hcense, as hereinafter provided. 

Sec. II. In case any corporation licensed under this act shall enter 
into any contract or combination or engage in any conspiracy in 
restraint of trade and commerce among the several States or with 
foreign nations, or shall monopolize or attempt to monopolize any 
part thereof, or shall engage in any oppressive methods of compe- 
tition for the purpose of obtaining a monopoly of said interstate 
commerce contrary to the provisions of the act of July second, 
eighteen hundred and ninety, entitled "An act to protect trade and 
commerce against unlawful restraints and monopolies," its license 
may be forfeited, or the said corporation may be enjoined from 
the continuance of such acts, as hereafter more particularly pro- 
vided. 

Sec. 12. For the purpose of carrying out the provisions of this 
act and for the proper supervision of such corporations as shall be 
licensed hereunder there is hereby created a commission, to be 
known as the Corporation Commission, which shall be composed 
of three commissioners. The said commissioners shall be appointed 
by the President, by and with the advice and consent of the Senate. 
Not more than two of said commissioners shall be appointed from 
the same political party. The first commissioners appointed shall 
hold office, one for two years, one for four years, and one for six 
years, and each commissioner thereafter appointed shall hold 
office for six years. No person in the employ of or holding any 
official relation to any corporation subject to the provisions of 
this act, or owning stock or bonds thereof, or who is in any manner 
pecuniarily interested therein, shall be eligible to hold such office. 
Such commissioners shall not engage in any other business, voca- 
tion, or employment. No vacancy in the commission shall impair 
the right of the remaining commissioners to exercise all the powers 
of the commission. 



Methods of Dealing with the Trust Problem 555 

The said commissioners shall each receive a salary of ten thousand 
dollars per annum. 

The said commission shall have the power and authority to in- 
quire into the organization, conduct, and management of the busi- 
ness of all corporations licensed under this act; and said commission 
shall have the right to obtain from such corporations full and com- 
plete information necessary, in its judgment, to enable the com- 
mission to perform the duties and carry out the object for which 
it is created, and it is hereby authorized to execute and enforce the 
provisions of this act. 

Sec. 12. ^ The said commission shall have the same power of 
inquiry over commerce conferred upon the Bureau of Corporations 
under the act creating the Department of Commerce and Labor, 
approved February fourteenth, nineteen hundred and three, in- 
cluding the power to issue subpoenaes 1 to compel the attendance of 
witnesses and the production of documentary evidence, and to 
administer oaths, and may avail itself of all the information ob- 
tained by said bureau and direct investigation to be made by said 
bureau when necessary to assist said commission. All the require- 
ments, obligations, liabilities, and immunities imposed by the act 
to regulate commerce and by the act in relation to testimony before 
the Interstate Commerce Commission, and by the act to create the 
Department of Commerce and Labor, shall apply to all persons who 
may be subpoenaed to testify as witnesses, or to produce documen- 
tary evidence in pursuance of the authority conferred by this act. 

Sec. 13. Any person, firm, corporation, company, or association, 
or any mercantile, agricultural, or manufacturing society or other 
organization, or any body politic or municipal organization, com- 
plaining of anything done, or omitted to be done, by any corpora- 
tion subject to the provisions of this act, or complaining that any 
such corporation has entered into any contract of combination, or 
engaged in any conspiracy in restraint of trade or commerce among 
the several States or with foreign nations, or has monopoHzed or 
attempted to monopolize any part thereof, or is engaged in oppres- 
sive or unfair methods of competition for the purpose of monopoliz- 
ing such commerce or part thereof contrary to the provisions of 
this act, or of the act of July second, eighteen hundred and ninety, 
entitled, "An act to protect trade and commerce against any un- 
lawful restraints and monopohes," may apply to said commission 
by petition, which shall briefly state the facts, whereupon it shall 
^ Thus in original. — Ed. 



556 Industrial Combinations and Trusts 

be the duty of the said commission, at such time and place as the 
commission shall determine, after notice to such corporation, to 
inquire into the subject matter of said complaint, and the commis- 
sion is hereby authorized in like manner, upon its own motion, to 
institute and prosecute any investigation of the acts of such cor- 
poration. And said commission shall have the same powers and 
authority to proceed with any inquiry on its own motion as though 
it had been appealed to on complaint or petition under any provi- 
sions of this act. Whenever any investigation shall be made by 
this commission under the terms of this act, it shall be its duty to 
make and file an order embodying the conclusions of the commis- 
sion, together with its decision or requirement in the prem- 
ises. 

The said commission shall have authority by its order to require 
any corporation licensed hereunder to desist from any violation of 
this act or of the act of July second, eighteen hundred and ninety, 
entitled "An act to protect trade and commerce against unlawful 
restraints and monopolies," and may institute proceedings in any 
district court of the United States or in the Court of Commerce for 
the forfeiture of the license of said corporation, or to enjoin the 
corporation from such violation, and said courts are hereby given 
jurisdiction upon the institution of any such proceedings, either to 
grant an injunction, to decree to ^ forfeiture of a license, or to make 
such other decree as justice and equity may require. 

Sec. 14. Under the provisions of this act there shall be paid to 
the Corporation Commission for the use of the United States the 
following fees: First, upon the fihng and approval of any applica- 
tion for license hereunder an amount equal to one-tenth of one per 
cent of the total authorized capital of said corporation up to ten 
million dollars; one-twentieth of one per cent of all capital in excess 
of ten milHon dollars; and up to twenty milHon dollars; two hun- 
dred and fifty dollars on every million dollars or fraction thereof of 
capital in excess of twenty million dollars; and the like fees upon the 
filing of any certificate of increase of the capital stock upon the to- 
tal amount of such increase. Second, in case any corporation is 
licensed hereunder with the whole or a part of its capital stock 
having no par value, then there shall be paid upon the filing and 
approval of the application for license or of any certificate of in- 
crease of capital a fee equal to two and one-half cents for each 
aliquot part of the capital of the corporation represented by each 
* Thus in original. — Ed. 



Methods of Dealing with the Trust Problem 557 

I 

of the shares not having a par value, but in no instance shall such 

fee be less than two hundred and fifty dollars. 

Sec. 15. Any corporation licensed hereunder may apply to the 
commission at any time for a determination as to whether or not 
any proposed action of such licensee would unduly restrain trade 
or commerce or create a monopoly, and the commission shall there- 
upon investigate and make an order allowing or prohibiting such 
proposed action, and any action taken by any corporation pur- 
suant to such order shall be lawful; but such order, as to its future 
operation, shall be subject to revocation upon notice. In connec- 
tion with any order allowing such proposed action and as a condi- 
tion of granting the same, the commission may fix the maximum 
prices of any products with reference to which the order is made 
if in the judgment of the commission the fixing of such price shall 
be necessary to prevent a monopoly or an undue restraint of trade 
or commerce, and the prices so fixed shall govern the said licensee 
so long as the order is in force. 

Exhibit 6 
andrew carnegie ^ 

In other words, there should promptly be created an industrial 
court, molded after the Interstate Commerce Commission and Court 
of Commerce, charged with all questions connected with manufac- 
ture and natural products, since the Interstate Commerce Commis- 
sion is already fully occupied with its own field, but as the Com- 
merce Court is not kept busy with appeals it might be the court 
of appeal for the industrial court as well as for the Interstate Com- 
merce Commission. To prove the pressing necessity for the two 
judicial organizations already formed, in contrast to the Supreme 
Court, which waited several years before an important issue came 
before it, the Interstate Commerce Commission has already sat in 
judgment upon the greatest of all organizations, the Pennsylvania 
Railroad Co. It asked to be permitted to advance its rate in one 
department. After investigation the reply in the negative was 
promptly accepted by the suitor, no appeal taken, who thus set all 
companies an excellent example. 

To-day the Commerce Court is hearing counsel on the transcon- 
tinental railroads who asked an injunction restraining an order of 

1 Hearings before the Committee on Investigation of United States Steel 
Corporation. 62nd Cong. 2nd Sess. 1911-1912, pp. 2347-2348. 



558 Industrial Combinations and Trusts 

the Interstate Commerce Commission construing the long and short 
haul clause. Thus the work goes bravely on. The reign of law is 
steadily being evolved as precedents are estabhshed. The industrial 
court need not fix all prices. Its province should be to examine all 
details, ascertain cost of production, adding to such amount as in 
its Judgment will yield a fair or even liberal return upon capital 
w^hen skillfully invested and properly managed; the maximum sell- 
ing price to consumers to be fixed by the court, based upon the aver- 
age cost price of product in up-to-date, well-managed works. There 
may be found poorly constructed or conducted works in all branches, 
which the court should not consider in fixing proper maximum price. 
Such should be compelled to reach standard performance or suffer 
the consequences of mismanagement. The court should not become 
an eleemosynary institution to avert failure of those who fail through 
inattention or mismanagement. It may be urged that this would 
prevent equal returns to owners, which is true. Any works which 
can not equal average cost and still have part left of the profit al- 
lowed by the court no nursing is likely to improve; the sooner it 
passes into competent hands, the danger of monopoly being avoided, 
the better for the country and, as a rule, the better for its owners. 
Failures now and then in business there always have been and always 
will be as long as men's powers and habits radically differ. 

While of opinion that little or no action is needed at present be- 
yond the organization and development of an industrial court, I 
am far from beHeving that from time to time, as we gain experience, 
new rules and some changes will not be found advisable and even 
necessary from time to time to keep in harmony with inevitable 
and probably surprising developments of the future. Our country 
has not ceased developing. We should unhesitatingly pursue the 
course here indicated for the present, and await further develop- 
ments and be guided accordingly. It is certain that our legislators, 
sustained by the people, who only need to be kept fully informed of 
all steps taken, can and mil in due time bring harmony out of present 
discord, reconstructing through the reign of law the old and present 
industrial systems by continual improvements therein, all tending 
to draw labor and capital, producer and consumer, into closer and 
more satisfactory relations than have ever before existed between 
them. 

Meanwhile, let us prove to the country, and especially to the 
masses of the people, that we are on the path of careful but steady 
progress to the advantage of all the members of the indispensable 



Methods of Dealing with the Trust Problem 559 

quartet — labor, capital, consumer, producer — the interests of which 
are more closely allied and more interdependent than either one of 
the four realizes. 

It is far from being of the first importance to punish men in this 
age who in the past formed pools and divided orders according to 
the capacity of their works or capital invested, or violated recent 
laws without knowing it. Men of the highest standing in the past 
thought they did no wrong and sought no concealment. The pro- 
ducer then did not imagine he was a wrongdoer. He followed recog- 
nized custom, and even railway ofl&cials, fighting in their day for 
their respective companies, urged that they only met the prices of 
competitors, were somewhat in the same position. 

Since the Sherman law has been so far interpreted by the Supreme 
Court, all this is changed. No honest man can now do some things 
which he did innocently before, but just what he can and can not 
do is yet to be clearly defined. It is, however, not punishment for 
the past, but obedience in the future to clearly defined law, which 
alone can bring to the realms of commerce and industry the peace 
which our railway system now enjoys. To this consimimation so 
devoutly to be wished we earnestly hope your commission is to prove 
one of the chief contributors. 

Exhibit 7 
james a. farrell, president of the u. s. steel corporation ^ 

Mr. Beall. But is your idea that competition is destructive, 
that it will result in bankruptcy; that it is a bad thing, SLuyway? 
Mr. Farrell. There is no question about it. If you apply it- 



Mr. Beall (interposing). And this old idea that has been pre- 
vailing in business for so many centmries, that competition is the life 
of trade, has been all a delusion? 

Are you also one of the apostles of this new cult that is being de- 
veloped in the country, that the Government ought to step in and 
regulate and fix the maximum price for the products of these cor- 
porations? Do you agree with Mr. Gary, Mr. Carnegie, and the 
other apostles of that idea, and Mr. Perkins? 

Mr. Farrell. Is that a personal question? 

Mr. Reed. He wants your personal opinion. 

^ Testimony of James A. Farrell. Hearings before the Committee on In- 
vestigation of United States Steel Corporation, 62nd Cong. 2nd Sess. 1911- 
191 2, pp. 2696-2699. 



560 Industrial Combinations and Trusts 

Mr. Beall. I would like to have your personal opinion about it. 

Mr. Farrell. I have written it out. I thought possibly I might 
be asked the question. 

I do not suppose that my opinion on the subject is of any particu- 
lar value. If your prefer to confine this inquiry to the industry, I 
shall endeavor to answer all the questions you wish to put to me, 
but if you want my ideas on this subject, I shall be glad to give them, 
although I do not consider them of value. 

Mr. Beall. It is an interesting question, Mr. Farrell, and rather 
a new one. 

Mr. Farrell. I am not a pubHcist. 

The Chairman. We are more anxious for your opinion on that 
accoimt. [Laughter.] 

supervision of corporations. 

Mr. Farrell. I believe that it is important for the Government 
to assume the power of such supervision of corporations engaged in 
interstate traffic as will result in full and clear publicity of their 
general operations, their receipts and expenditures and profits and 
losses, in order to protect investors and the people generally. Such 
supervisory board could not only be authorized to compel such 
necessary publicity, but empowered in the case of any corporation 
not presenting information as to the details required by the law which 
may be enacted, to investigate into the conduct of its business, with 
a view to full exposition of its methods. Such publicity as I have 
in mind is along the lines of the information that has been freely 
and fully given out by the United States Steel Corporation in its 
annual reports and frequent statem^ents. 

The fixing of prices by Government authority: Speaking entirely 
as an individual and giving my personal views without any knowl- 
edge of what might be the views of other officials and directors of 
the United States Steel Corporation, it would appear to be abso- 
lutely impracticable for the Government to attempt to fix prices of 
all commodities, even those manufactured only by the steel industr^^, 
in view of the hundreds of thousands of variations of shapes, sizes, 
sections, gauges, kinds, qualities, etc. When it is considered that 
it requires a large corps of experts in each of the manufacturing com- 
panies of the United States Steel Corporation alone to determine the 
costs of hundreds of thousands of articles or variations of such prod- 
ucts as those companies make, it can be readily understood that 
it would require hundreds of experts merely to determine suitable 



Methods of Dealing with the Trust Problem 561 

prices for the steel industry alone, without considering the thousands 
of other industries in the United States, each of which would be 
equally entitled to have prices fixed on their multitude of products. 

If the questions be considered from the standpoint of fixing maxi- 
mum prices, it would seem to be equally impracticable, for the reasons 
just cited, as well as the difficulty of satisfying the many manufac- 
turers engaged in the same fines of trade, each of whom have dif- 
ferent costs of manufacture to produce the same or similar articles. 
It would seem unnecessary to point out the many other objections, 
including the necessity of frequently altering the fixed prices to 
accord with the laws of supply and demand, the changeable costs of 
manufacture contingent on the volume of production and other 
exigencies of manufacture. As a natural corollary to the fixing of 
either changeable or maximum prices would be the inevitable ne- 
cessity of fixing maximum and minimum wages to labor, as it is 
necessary, according to theorists and economists, that the wages of 
labor must be commensurate with the article which it manufactures 
or which it directly or indirectly consumes. 

Suggested method of insuring fair prices: If it should be asked, 
however, granting the necessity of Government supervision of corpo- 
rations under Federal incorporation, whether mandatory or volun- 
tary, as in the wisdom of Congress might be determined, and conced- 
ing the impracticability of fixing prices, how a fair price to consumers 
and manufacturers alike may be insured with the object of avoiding 
(a) the exacting of excessive prices from consumers; (b) any possible 
oppression of their competitors by manufacturers with larger capital 
or better facilities for economic production; (c) avoiding destructive 
competition whereby weaker producers would be driven out of busi- 
ness; (d) the impoverishment of people dependent on such industries, 
loss of employment, or reduction of wages — it is suggested as being 
worthy of consideration, a law similar to that which obtains in 
Canada — ^you are no doubt familiar with that law in Canada — and 
which in effect is the practice in Germany. 

When it might appear to the Government board of supervision, 
either on their own initiative, or from the complaint of any consid- 
erable body of consumers, that prices in any line of industry are 
unreasonably high, they should be empowered to make inquiry into 
the facts, to call upon manufacturers to disclose their profits, and to 
determine and indicate to manufacturers their opinion as to the rea- 
sonableness of their price, subject, if necessary, to review by the 
courts as to any contention that prices were confiscatory. 



562 Industrial Combinations and Trusts 

Likewise, when, in the opinion of any body of manufacturers, it 
should appear necessary, in order to prevent destructive competi- 
tion, the lowering of wages, the impairment of plants, throwing work- 
men out of employment, and other similar evils through reduction 
of prices to levels which would not permit efficient plants to operate 
at a fair profit, it should be permissible for manufacturers or the 
owners of plants to enter into agreement as to such reasonable prices 
as might be necessary to prevent such results. To avoid the pos- 
sibility of such manufacturers agreeing on excessive prices there 
would be the remedy of the opportunity of appeal by consumers to 
the Government board of supervision, and the consequent pubUcity, 
which would act as a restraint upon manufacturers from fixing ex- 
cessive prices; penalties, such as forfeiture of Federal incorporation 
or other suitable means of redress could be enforced, if necessary, 
to dissuade manufacturers from maintaining prices adjudged to be 
either excessive or ruinously low. 

The foregoing suggestion is not by any means a novel or original 
one. It is in effect that which is permitted in Canada, Germany, 
and other foreign countries, the object of whose Governments is ap- 
parently to foster industries rather than to tear them down. Such 
Governments not only allow reasonable prices to be fixed by agree- 
ment, but require them to be fixed for the protection of manufac- 
turers, consumers, and labor alike. 

Mr. Beall. As I understand, your position is that it is not pos- 
sible for the Government to step in and go to the extent of fixing 
even a maximum price, for the reason that you have so clearly stated? 

Mr. Farrell. Would you accept that brief as an answer to your 
question, Mr. Beall? 

Mr. Beall. Yes. 

Then the alternative would be the breaking do'^Ti of the laws as 
they exist to-day that forbid the kind of agreements such as you 
have mentioned. You would have to repeal all the laws forbidding 
monopoly and restraint of trade — the Sherman Act and everything 
like that? 

Mr. Farrell. Not necessarily. I do not beUeve in the repeal of 
the Sherman Act, but I beheve the Sherman Act should be amended 
so as to enable manufacturers to know what they can do. We do not 
know now what we can do. 

Mr. Beall. If this theory that was suggested here first by Judge 
Gary should be put in operation, and some governmental agency 
should be required to fix a maximum price as a basis for its action, 



Methods of Dealing with the Trust Problem 563 

it would be necessary for that agency to be fully advised as to the 
cost of any article, would it not? 

Mr. Farrell. Are you asking my opinion with respect to the 
testimony that has been given? 

Mr. Beall. No, sir; I am asking your opinion if a certain policy 
should be pursued by the Government that has been suggested here, 
whether or not it would be necessary for that commission, or what- 
ever you might term it, to have accurate, full, and complete informa- 
tion as to the cost of any and every article the price of which they 
would attempt to regulate; and that condition would bring about the 
very condition against which you protest to-day; it would advise all 
the world of the cost of any article made by American manufacturers? 

Mr. Farrell. As I understand the Sherman law, it is designed to 
prohibit monopoly? 

Mr. Beall. Yes. 

Mr. Farrell. As the Sherman law is designed to prohibit mo- 
nopoly, which w^ould inevitably result from destructive competition, 
driving the weaker competitors out of business, it should be equally 
clear that it should permit such agreements among manufacturers 
as to prices as would enable them to avoid the destructive competi- 
tion which is impliedly prohibited. 



Exhibit 8 

george w. perkins 1 

It seems to me that the developments of this last year have made 
this pretty plain to our people, and my observation is that the time 
is ripe to make a careful beginning at least of some sort of regulation 
of interstate and international business, and having watched this 
phase of the development as carefully as I have been able to, and 
all that has been said by a great many people who are qualified to 
speak on it, I have reduced to a short memorandum what occurs to 
me might possibly be a step that could be taken very promptly for 
relief. I will read it. I have divided this into two parts, as follows: 

1 Testimony of George W. Perkins. Hearings before the Committee on 
Interstate Commerce on the Control of Corporations, Persons and Firms en- 
gaged in Interstate Commerce. 62nd Cong. 2nd Sess. 1911--1912, pp. 1091-1093, 
1122-1129. 



564 Industrial Combinations and Trusts 



IMMEDLA.TE RELIEF. 

First. Create at once in the Department of Commerce and Labor 
a business court or controlling commission, composed largely of expe- 
rienced business men. 

Second. Give this body power to Hcense corporations doing an 
interstate or international business. 

Third. Alake such hcense depend on the abihty of a corporation 
to comply with conditions laid down by Congress when creating 
such commission and Vvith such regulations as may be prescribed 
by the commission itself. 

Fourth. Make publicity, both before and after license is issued, 
the essential feature of these rules and regulations. Require each 
company to secure the approval of said commission of all its affairs, 
from its capitalization to its busmess practices. In the beginning 
lay do^TL only broad principles, -^ith a view to elaborating and per- 
fecting them as conditions require. 

Fifth. ]Make the \'iolation of such rules and regulations punish- 
able by the imprisonment of individuals rather than by the revoca- 
tion of the license of the company, adopting in this respect the method 
of procedure against national banks in case of wTongdoing. 

PROSPECTI\'E RELIEF. 

First. The House and Senate to join at once in appointing a com- 
mission to make a careful study of the Sherman law and the various 
suggestions that have been made regarding its repeal, amendment, 
and amplification. 

Second. Said commission to study and report on the wisdom and 
practicabihty of a national incorporation act. 

SL-MMARY. 

Anyone famihar -^ith present business conditions in this country, 
both as to domestic and foreign trade, reahzes that the brakes are on. 
We are not expanding our domestic trade to the extent we should be. 
New enterprises are not being undertaken as freely as they should be. 
Capital in this country is contracting rather than expanding its op- 
erations, while Germany, Canada, and other countries are forging 
ahead \\ith their industrial plans. The reason for this attitude on 
our part arises largely from the fear engendered by the prosecutions 
under the Sherman Act. At the present time the business man's 
complaint is that he does not know when he is right or when he is 



Methods or Dealing with the Trust Problem 565 

wrong; that this apparently can not be known until he is prosecuted 
and his case reaches the court, and that as matters now stand he does 
not and can not know, as he proceeds with his business, whether he 
is a good citizen or a criminal. 

Serious as this phase of the situation is, it is all important that we 
do not commit ourselves to a permanent national policy until such 
commitment can be made in a calm, dispassionate frame of mind, the 
people having had ample opportunity to weigh the pros and cons of 
the case. Wliile this is true, immediate reUef is clearly desirable, if 
such rehef can be provided along conservative lines. 

We are now collecting taxes from corporations, which in itself is 
the first step in establishing the principle of publicity between cor- 
porations and government. It ought not to be unwise or difficult, 
therefore, to immediately expand the powers of the Department of 
Commerce and Labor, with regard to publicity and control, suffi- 
ciently to create a board of control with power to license such in- 
terstate companies as, in the judgment of such board, are clearly 
working for and not against public interest. In other words, in such 
cases substitute a board of this sort for long-drawn-out lawsuits. 
This would have the immediate effect of placing any company able 
to secure such a license in position where it would know that it was 
proceeding along Hnes not in violation of national laws or Federal 
authority. Such concerns as could not or did not wish to meet this 
test woiild then have no right to complain if they were proceeded 
against imder the Sherman law. 

In the above-described manner immediate relief could be pro- 
vided. At the same time the questions surrounding the Sherman 
law and national incorporation for interstate industrial companies 
would be under an investigation that would be proceeding in a 
calm and orderly manner, with a view to reaching ultimately a 
permanent solution of the whole question. Meanwhile, uncer- 
tainty would be dispelled; yet we would only be building up our 
present Department of Commerce and Labor and Bureau of Cor- 
porations into a live, vital bureau — much in the same way that 
we gradually built up the Interstate Commerce Commission by 
extending and enlarging its powers from time to time. 



Senator Watson. You spoke of the best efficiency being the 
test of success. Do you think that under the present laws the 
best efficiency can be reached? 



566 Industrial Combinations and Trusts 

Mr. Perkins. No, sir. 

Senator Watson. Then, as I understand your comrrdssion idea, 
you would have this commission allow the corporations to do 
practically anything that did not interfere v/ith the public interests 
that the corporations wanted to do? 

Mr. Perkins. Broadly speaking, that is about it. I believe that 
for a time complete pubhcity of the corporation's affairs, through 
a commission, would be a sufficient guarantee of such protection, 
and that from that, as conditions in our country and in the world 
developed, we could add further specific regulations to meet chang- 
ing conditions. 

Senator Watson. Some of the witnesses have advocated uni- 
form prices practically. What is your opinion of that? 

Mr. Perkins. I beHeve that is one of the things that could be 
taken up by such a commission and probably arrived at rather 
speedily, and I believe it would be a very proper thing to work out 
as fast as it could be done without seriously disturbing our domestic 
or foreign trade in any given corporation. 

Senator Watson. Would you have that worked out by the com- 
mission or by statute? 

Mr. Perkins. You might be able, in that particular case, to 
word a statute that would substantially cover it, but I do not think 
that we can for a moment lose sight of the fact that business is very 
different from transportation, and that each business has to be 
conducted somewhat differently from its brother business, and of 
course, as a whole, it is a very delicate network. 

Senator Watson. The theory worked out by the Interstate Com- 
merce Commission on freight rates is an average rate confined to 
zones, as you understand? 

Mr. Perkins. Yes, sir. 

Senator Watson. They do not charge the same rate for the same 
service always? 

Mr. Perkins. No. 

Senator Watson. They charge what we would call an average 
rate, for instance. They may have the same commodity for a 
certain city — three rates? 

Mr. Perkins. Yes. 

Senator Watson. As to some commodities I can understand why 
a uniform price would work very satisfactorily, but as to others 
I think it would mean a complete change in freight rate. 

Mr. Perkins. That is exactly my point. 



Methods of Dealing with the Trust Problem 567 

Senator Watson. So you might work that out on certain com- 
modities, and as to others you would not want the same rule? 

Mr. Perkins. That is exactly it, and that is one reason why I 
believe it is going to be extremely important to have a commission 
like that, composed largely of business men of experience. 

If I may take your time for a moment — I have thought about 
this for a good many years — I believe that a commission composed 
of such men would accomplish a good many things. We have in 
this country no goal for the business man in the way of preferment, 
or honorable mention, so to speak, unless he eventually goes out 
of business into public life. Now, Europe does very differently. 
In Germany, for instance, a captain of industry is knighted and 
here he is indicted. I believe that if we establish a business court 
of that sort that it would gradually come to be the goal of the 
young man who is going into business. They would say, ''Some 
day or another I may be called to serve on this commission or court." 
I think it would be a steadying influence on that man's whole 
business career, and he would look forward to it like the lawyer 
does to the Supreme Court as possible preferment, and that man 
would give up almost any business calling finally to be a member 
of such a commission. There is not a lawyer, I suppose, in the 
country who would not give up any lucrative practice for an ap- 
pointment on the Supreme Bench, because that has come to be the 
goal — the highest degree of honor — and if it is said that it would be 
turning business over, or turning the Government over to business, 
I do not think that holds, because we have not found it in any 
respect, certainly not in regulation of our railroads. Take another 
instance. Our Presidents select officials from corporation life, 
like Mr. Knox and Mr. Wickersham, and they gave up lucrative 
businesses and went into these offices, and have stood an immense 
amount of abuse from their old friends and colleagues and associates. 
Yet they have discharged their oath of office as they saw it in the 
interest of the people. I beHeve the business men would adopt the 
same course. Mr. John Claffin, of New York, for instance, a man 
who had reached the point of Hfe where he had had broad experience, 
called on such a commission as that would go on it and give to 
the public the same sort of service that he had been giving to his 
own business. 

You could have a commission of that sort of seven or nine men 
who had had that kind of experience and knew the trade conditions 
of the world, and would work that way for the public interest. I 



568 Industrial Combinations and Trusts 

think you can easily imagine of what enormous value that would 
be to our people in their own affairs, and more especially to us in 
developing our foreign trade. 

Senator Brandegee. I have only a question or two. The com- 
mission that you would like to see estabhshed, I beUeve you called 
it a business court? 

Mr. Perkins. "A rose by any other name" would suit me just 
as well. 

Senator Brandegee. To use your own phraseology. You spoke 
of having a business court estabhshed in the Department of Com- 
merce and Labor before whom you could make appHcation for 
Government hcense, if I recall your proposition? 

Mr. Perkins. Yes, sir. 

Senator Brandegee. Would you allow an appeal from the ruUng 
of the commission if it dechned to issue a license? 

Mr. Perkins. I think so. I think the appeal should go either 
to the Interstate Commerce Commission or some court 

Senator Brandegee. You mean the Court of Commerce? 

Mr. Perkins. The Court of Commerce, I mean. 

Senator Brandegee. Now, I do not know that I thoroughly 
comprehended what you meant to give this business court in the 
way of power. You would give it the power to license apphcants 
engaged in commerce among the States if they found what? 

Mr. Perkins. At the beginning I would give them power to 
license such a company as in the judgment of this court was properly 
capitalized — conservatively capitaHzed — and conducting its busi- 
ness along such lines as to commend its practices to the judgment 
of this court, and cause the court to feel that it was working in the 
public interest rather than against the public interest, not re- 
straining trade unduly or acquiring monopolistic control, and with 
the understanding that this company would submit its affairs in 
the most complete manner possible to this court, not to be filed 
in the archives of this court and regarded as purely personal to 
the President or the Attorney General, but to be in turn made 
pubHc to not only the stockholders of this company but to the 
public, so that competitors could know the general methods of the 
company and the pubhc could know the methods of the company; 
and that is about as far as I would go at the start. 



Methods of Dealing with the Trust Problem 569 

As different question ^ came up in connection with that regulation 
and control, much as we have developed the regulations and control 
of railroads, we could expand from year to year; but I believe so 
thoroughly that publicity of the right sort would be a very strong 
deterrent on the management ctf any company from doing anything 
that was not right, and would be so convincing to the public that 
what was done was being done right, that we would find ourselves 
relieved from the necessity of resorting to a long schedule of fixed 
rules, which were to the effect, "Thou shalt not," "thou shalt not," 
and "thou shalt not." 

Senator Brandegee. You would put in those things that you 
have indicated in the statute creating the business court as a rule 
to guide the business court in determining the question of whom 
it should license and whom it should not? 

Mr. Perkins. Yes, sir. 

Senator Brandegee. Of course, that would have to be carefully 
drawn to see that it would not be in unreasonable restraint of trade. 

Mr. Perkins. Yes, sir. 

Senator Brandegee. And on those questions you would allow 
the right of appeal to some court from the judgment of the com- 
mission? 

Mr. Perkins. Yes, sir. As it is now, however, whatever may be 
said about the interpretation of the Sherman Act by the court, the 
plain cold-blooded fact remains that as we stand to-day, unless 
through the steel suit, in two or three years, or some other suit we 
find some other interpretation, we have got to apparently pass 
through a long series of lawsuits, and each man has got to come up 
and have his corporation passed on by a lawsuit. 

Now, if we could save those two or three years by immediately 
creating a court that could say after a corporation has come before 
it, "Now, we will take the responsibihty of saying you can go ahead 
so long as you keep us informed about what your practices are," it 
would help very, very much. 

Senator Brandegee. Would you have this business court issue 
these licenses for a Hmited period of time? 

Mr. Perkins. No, sir; I do not think that is feasible. If the busi- 
ness was legitimate and properly started, and an interstate and in- 
ternational business, with stockholders in large numbers every- 
where, I think it should be given all the elements of permanency 
possible. 

1 Thus in original. — Ed. 



570 Industrial Combinations and Trusts 

Senator Brandegee. I inferred from your last statement that 
the license you contemplated would be a revocable license whenever 
in the judgement of the business court the corporation was not act- 
ing to suit it? 

Mr. Perkins. I certainly would give the court the right to re- 
voke the Hcense with the right of appeal, but I would make that al- 
most the last resort; that is, I would in that respect control the cor- 
porations as we do our banks. I would punish the individual and 
exhaust all those channels before I actually injured the existence of 
the company itself, because we must remember that the company 
can not do anything wrong. It is not a Hve thing; it is a creation of 
man, and there is no use injuring an innocent third party and dis- 
turbing our business because some man does something that is not 
right. 

Senator Brandegee. You would not have the Hcense revocable 
then, but you would rely upon punishing the individuals who in- 
dulge in any unfair practices? 

Mr. Perkins. Yes, sir; I think the Government should always 
keep the right, as a last resort, to revoke the license, but I think 
that should be the last thing it should do, and should be done per- 
haps in practice not at all, but I think you might easily have cases 
where people would be imprisoned for having \dolated the laws 
under which they were operating or the laws as laid down by this 
commission. That is just what we do with our banks. 

Senator Brandegee. Do I understand you to say that on the 
question of whether the Hcense should be revoked or not you would 
aUow^ an appeal to some court on that question? 

Mr. Perkins. I would. These companies, you see, have come 
not only to be merchants, but they have come to be trustees for 
investments. I think it is extremely important that the country 
understood that and realized that. 

Senator Brandegee. If an appHcant for a Hcense secured the 
license, you then say until it was revoked you would have the appH- 
cants immune from prosecution under the Sherman antitrust 
law? 

Mr. Perkins. Yes, sir. Now, you see, Senator, if he said, ''Well, 
I do not want this license," or "I can not get a license," then it 
seems to me that is equivalent to the Government ha\ing notice that 
there is something about that concern that ought to be looked into 
under the Sherman law, and he would not have a right to complain 
if the Government did proceed against him because he would have 



Methods of Dealing with the Trust Problem 571 

had a way to demonstrate to the court that he was entitled to the 
Ucense. 

Senator Brandegee. Any corporation indulging in commerce 
among the States which had applied for a license and been denied 
the license by this business court, would be subject to prosecution 
or a bill being brought against them under the Sherman law? 

Mr. Perkins. Exactly. 

Senator Brandegee. And all those who had been licensed would 
be immune? 

Mr. Perkins. Yes, sir. 

Senator Brandegee. So that, if the business court thought that 
a man was a proper subject for its license and should grant it, even 
if the Attorney General thought it was directly operating in viola- 
tion of the Sherman law, he and the department of the Govern- 
ment would be powerless to have the question tested in the circuit 
or the Supreme Court of the United States because they held a 
license from this business court, which operated as an immunity? 

Mr. Perkins. I think that if they wanted to interpose any objec- 
tion they ought to do it before the company had its license. I 
think a company, once having had a hcense, should be immune so 
long as it Hved up to the condition under which it obtained its 
license — that is, while the license was being issued — if the Attorney 
General wanted to interpose an objection he ought to have the 
right to be heard. 

Senator Brandegee. I was just going to ask you, would you not 
provide that it should be the duty of some Government official — the 
Attorney General or somebody else — to appear in behalf of the 
Government at the time the corporation was applying for its li- 
cense? 

Mr. Perkins. I look upon this court as in behalf of the Govern- 
ment. 

Senator Brandegee. So do I ; but you would leave it a matter to 
be determined by the court and the applicant without any other 
department of the Government. 

Mr. Perkins. I see no objection. For instance, if your course 
was adopted of having an independent court, of allowing the Bureau 
of Corporations to interfere or interpose by the Attorney General. 

Senator Brandegee. As I understand it, it would not be your 
view at present to make it mandatory on the Attorney General or 
the Department of Justice to appear, but you would give them the 
right to appear if they so desired? 



572 Industioal Combinations and Trusts 

Mr. Perkins. I think I would. I had not thought of that. It 
is a new suggestion, but I think that might not be an improper 
thing. 

Senator Brandegee. You spoke in answering some questions 
that were asked you about whether a concern controlHng 75 per 
cent of the business would be, in your opinion, in restraint of trade 
or not — if I recall the question, or whether it would be contrary to 
any provision of the Sherman law or the antitrust act. Would it not, 
do you not think, lie in the minds of the people who are contemplat- 
ing the acquisition of 75 per cent of the business that the Govern- 
ment might set up the claim that the mere fact of the control of 
such a proportion of the business was that it tended to show an 
intent to monopoUze some part of the commerce among the States, 
and therefore be in violation of the second section of the law? 

Mr. Perkins. Yes; I think that is one of the disturbing condi- 
tions to-day, and I think in that connection that sufficient weight 
has not been given to this phase of it at all. Those of us who have 
had practical business experience in more than one Hne of business 
especially, know that a certain group of men of the right type and 
abiUty could come nearer restraining trade and monopolizing trade 
with 40 per cent, we wdll say, of a given business than another group 
of men might with 75 per cent of the business. So that it is not the 
percentage that does it, but it is the men. 

Senator Brandegee. You have your own idea of what you mean 
by the words "restraint of trade?" 

Mr. Perkins. Yes, sir. 

Senator Brandegee. As I understand you, it is not necessarily 
what the courts have decided or said about restraint of trade? 

Mr. Perkins. I do not know what they have decided. 

Senator Brandegee. I understand you to say that you think 
there may be cases, and probably are, where a great deal of a certain 
kind of competition may have been eliminated without trade having 
been restrained at all, but on the contrary, trade having been pro- 
moted? 

Mr. Perkins. Exactly. 

Senator Brandegee. That is all. 

Senator Newlands. I think the ground has been covered already 
by some of the questions that have been asked recently, but I simply 
wish to ask you, Mr. Perkins, regarding agreements limiting produc- 
tion and agreements between competitors as to price. What do you 
think of those? 



Methods of Dealing with the Trust Problem 573 

Mr. Perkins. I think they are very largely a question of indi- 
vidual settlement. Different lines of business vary so largely ac- 
cording to locality and environment, and all that sort of thing, that I 
think that has got to be worked out with the greatest possible care. 

Senator Newlands. Would you give such a business court the 
power to approve the agreements between competitors as to limi- 
tations of production with a view to preventing overproduc- 
tion? 

Mr. Perkins. Do you mean a broad principle covering every- 
thing? 

Senator Newlands. Yes. 

Mr. Perkins. No, sir; not at the beginning, I would not. 

Senator Newlands. How about prices; would you give them 
the power to approve agreements as to uniform prices? 

Mr. Perkins. No, sir; not at the beginning. I would let that 
work itself out after we had licensed 50 or 500 companies who would 
agree absolutely to make their affairs public; if a man is not willing 
to do that then he ought not to have a license, in my judgment, and 1 
if he does, and will play that way, I believe it will allay a great deal 
of the difficulty. You see these questions to a great extent are re- 
volving around what might be known as the wholesale business. 
Now we gentlemen all remember that in our boyhood days there 
were very few retail stores where you could not go in and horse 
trade for what you wanted. The prices were not marked on the 
goods, and there were all sorts of prices. Now we have moved along 
in the retail business to a point where we can go down any street 
to a dozen stores, and the prices are all open. There is not very 
much trading. You know what it is, and a man down the street, 
next door, knows what the other man's price is. If that had been 
suggested to our fathers they would have thrown up their hands and 
said: "Everybody knows all about our prices; we can not make 
anything." But we have worked that out in the retail business. It 
is an open book as to what prices are, yet there is competition and 
they live. But in these larger affairs which, for want of a better 
name, you call wholesale business, there is still all that secretive way 
of doing, and if there is anything that tends to break the command- 
ment of "Thou shalt not bear false witness against thy neighbor," 
it is the method by which large contracting and bidding for con- 
tracts is done in this country, because the whole system is one of 
deception from beginning to end. It is all built up around the idea 
* In the original this line and the line above w§y^ trf^nspose(J, — Ed, 



574 Industrial Combinations and Trusts 

that you must lead another man on to make a lower bid, and then 
lead somebody else on, and that is supposed to be competition. 

Now, we have got in some way or another, with the enormous de- 
velopment of our methods of intercommunication, living as close as 
we do together in the world, to get the wholesaler, the corporation, 
on something like a basis that will be analogous to the retail business 
which is done much more in the open and in a frank manner. You 
have the competition there just the same. 

Exhibit 9 - - . . V 

LOUIS D. BRANDEIS ^ 

Mr. Perkins's argument in favor of the efficiency of monopoly pro- 
ceeds upon the assumption, in the first place, and mainly upon the 
assumption, that with increase of size comes increase of efficiency. 
If any general proposition could be laid down on that subject, it 
would, in my opinion, be the opposite. It is, of course, true that a 
business unit may be too small to be efficient, but it is equally true 
that a unit may be too large to be efficient. And the circumstances 
attending business to-day are such that the temptation is toward 
the creation of too large units of efficiency rather than too small. 
The tendency to create large units is great, not because larger units 
tend to greater efficiency, but because the owner of a business may 
make a great deal more money if he increases the volume of his busi- 
ness tenfold, even if the unit profit is in the process reduced one- 
half. It may, therefore, be for the interest of an owner of a business 
who has capital, or who can obtain capital at a reasonable cost, to 
forfeit efficiency to a certain degree, because the result to him, in 
profits, may be greater by reason of the volume of the business. Now, 
not only may that be so, but in very many cases it is so. 

And the reason why the increasing the size of a business may tend 
to inefficiency is perfectly obvious when one stops to consider. Any- 
one who critically analyzes a business learns this: That success or 
failure of an enterprise depends usually upon one man; upon the 
quality of one man's judgment, and, above all things, his capacity 
to see what is needed and his capacity to direct others. 

* Hearings before the Committee on Interstate Commerce on the Control of 
Corporations, Persons and Firms engaged in Interstate Commerce. 62nd Cong. 
2nd Sess. 1911-1912, pp. 1147-1152, 1157-1158, 1161, 1167, 1170-1171, 1174- 
1176, 1178-1179, 1236, 1256-1257, 1267-1271, 1274-1276. 



Methods of Dealing with the Trust Problem 575 

Now, while organization has made it possible for the individual 
man to accomplish infinitely more than he could before, aided as he 
is by new methods of communication, by the stenographer, the tele- 
phone, and system, still there is a Hmit to what one man can no ^ well; 
for judgment must be exercised, and in order that judgment may be 
exercised wisely, it must be exercised on facts and on a comprehen- 
sion of the significance of the relevant facts. In other words, judg- 
ment can be sound only if the facts on which it is based are both 
known and carefully weighed. There must be opportunities for 
judgment to mature. When, therefore, you increase your business 
to a very great extent, and the multitude of problems increase with 
its growth, you will find, in the first place, that the man at the head 
has a diminishing knowledge of the facts and, in the second place, a 
diminishing opportunity of exercising a careful judgment upon them. 
Furthermore — and this is one of the most important grounds of the 
inefficiency of large institutions — there develops a centrifugal force 
greater than the centripetal force. Demorahzation sets in; a condi- 
tion of lessened efficiency presents itself. These manifestations are 
found in most huge businesses — in the huge railroad systems as well 
as in the huge industrial concerns. These are disadvantages that 
attend bigness. 

Now, that mere size does not bring efficiency, does not produce 
success, appears very clearly when you examine the records of the 
trusts. 

In the first place, most of the trusts which did not secure a domina- 
tion of the industry — that is, the trusts that had the quality of size, 
but lacked the position of control of the industry, lacked the ability 
to control prices — have either failed or have shown no marked suc- 
cess. The record of the unsuccessful trusts is doubtless in all your 
minds. One of the earliest of the trusts which did not secure control 
was the Whisky Trust. It was not successful. The plight of the 
Cordage Trust and of the Malting Trust was worse. Consider other 
trusts now existing, the Print Papers Trust (the International Paper 
Co.) ; the Writing-Paper Trust (the American Writing Paper Co.) ; 
the Upper Leather Trust (the American Hide & Leather Co.) ; the 
Union Bag Trust; the Sole Leather Trust; those trusts and a great 
number of others which did not attain a monopoly and were there- 
fore unable to fix prices have had but slight success as compared with 
their competitors. You will find daily evidence of their lack of suc- 
cess in market quotations of the common stock, where they are 
^ Thus in original. — Ed. 



576 Industrial Combinations and Trusts 

quoted at all, and the common stock of some has even fallen below 
the horizon of a quotation. 

Now take, in the second place, the trusts that have been markedly 
successful, like the Standard Oil Trust, the Shoe Machinery Trust, 
the Tobacco Trust. They have succeeded through their monopoHstic 
position. They dominated the trade and were able to fix the prices 
at which articles should be sold. To this monopolistic power, in 
the main, and not to efficiency in management, are their great profits 
to be ascribed. 

Leaving the realm of industry for that of transportation, com- 
pare the failure of Mr. J. P. Morgan's creation — the International 
Mercantile Marine — and the astonishing success of the Pullman Car 
Co. The transatlantic steamship trade was open to competition, 
and could not, in spite of its price agreements, fix rates at an eleva- 
tion sufficient to be remunerative. The Pullman Co., possessing an 
absolute monopoly, has made profits so large as to be deemed uncon- 
scionable. 

In the third place, take the class of cases where the trust has not 
controlled the market alone, but exerted control only through virtue 
of price agreements or understandings, as did the Sugar Trust and 
the Steel Trust. Those trusts paid large dividends, because they 
were able to fix remimerative prices for their product. But neither 
the Sugar Trust nor the Steel Trust has been able to hold its own 
against its competitors. 

Take it in the Sugar Trust. At the time of the Knight case, a 
little less than 20 years ago, the Sugar Trust had practically the 
whole business of the country — I think the Supreme Court report 
shows something like 95 per cent. The company's reports to the 
stockholders of 1910, as I recall it, show that the company now con- 
trols only 42 per cent of the production of the country. 

The price agreements or understandings between the trust and 
its competitors had maintained the price, but they could not main- 
tain for the trust its proportion of the business. The Sugar Trust's 
profits were maintained, as you so well know, not only through the 
price agreements, but through methods that were vulgarly criminal — 
through false weighing; through steaUng of city water; through 
extensive railroad rebating. 

Then take the Steel Trust — that is a younger trust, only half the 
length of life of the Sugar Trust. But in the Steel Trust you have a 
similar manifestation of ebbing prestige. In spite of all this extraor- 
dinary power in the Steel Trust, the control of raw material, the 



Methods of Dealing with the Trust Problem 577 

control of transportation, the control of certain trade through its 
railroad associations, the control of other trade through its money 
power — and the addition of the Tennessee Coal & Iron Co. — ^in 
spite of all this the Steel Trust has been a steady loser in percent- 
age of the iron and steel business of this country. And not only 
has it been a steady loser in the percentage of business in this coun- 
try, but despite its ability to largely maintain prices, notably of 
steel rails, throughout that period, the later years show a diminish- 
ing return upon the capital invested as compared with the earlier 
years of the trust. 

What does that indicate? Does it not indicate a lessened effi- 
ciency, either actually or relatively, to other businesses? 

Supplement those facts by a consideration of other evidence of 
the state of efficiency reached. Efficiency is ordinarily manifested 
in two ways: One is in respect to quality — ^whether there has been an 
advance in the art as to the quality of the products — and the other 
is whether there has been an advance in the art lessening the cost of 
the article. 

Now, what is the situation in regard to the Steel Trust? There 
are two steel products in common use in the United States in which 
the American people are particularly interested. One is steel rails; 
the other is fence wire. The Steel Trust has failed in respect of both 
of those important articles of production to keep up with the demand 
of the community — not in quantity, but in quality. 



Another test of efficiency to which the United States Steel Corpo- 
ration has been subjected and which it has failed to meet is this: It 
has shown itself unable to maintain its prestige in the world's com- 
petition. 

Now, every one of you gentlemen can remember the situation in 
respect to the exportation of steel 10 or 11 years ago. England was 
in a panic; Germany and Belgium were in terror at the extraordinary 
reductions in cost which we had made in America in the production 
of steel. 

It looked almost as if all the blast furnaces in England would have 
to be closed and that the conditions in Belgium and Germany would 
be similar, except so far as they might be protected in their home 
markets by a tari£F. The world market was apparently within our 
grasp. 

What is the situation in 191 1? 



578 Industrial Combinations and Trusts 

The world's market has gro^vn immensely during the inter\'ening 
period. Outside the home markets of Germany and England there 
is a demand for more than 10,000,000 tons a year, which is anybody's 
trade — that is, it is open to either England, Germany, or America, 
whoever can get it. WTat has been our course of events? In the 
last four years the capacity of the United States Steel Corporation 
has been utihzed, in the main, to an extent var}ing from 55 to 75 
per cent of its capacity. During a large part of these four years the 
United States Steel Corporation has had 33 ^ per cent of unused 
capacity. In spite of that fact Germany and England have acquired 
most of the increasing world's trade. The German trade in this ver}-- 
period in which the steel corporation has been in existence has in- 
creased 500 per cent. 

Mr. Perkins has spoken of the American abihty which, if it is given 
fair opportunity, %^ill attain commercial results far beyond anything 
that may be expected of Germany, and yet there you find Germany 
and England running away with the world's trade, while the steel 
corporation had idle one-third of its plants, representing millions 
annually in interest and depreciation charges. 

In the 10 years during the steel corporation's hfe our foreign 
steel and iron tonnage increased from 1,154,000 to 1,533,000 tons, 
Germany's tonnage increased from 838,000 to 4,868,000, and 
the United Kingdom's toimage increased from 3,213,000 to 
4,594,000. 

Now, what is the explanation? This I submit: 0"^ing to this Steel 
Trust consolidation and accompanjdng condition our cost of manu- 
facturing steel has risen to such a point that we can not compete 
successfully mth those countries or can compete only to a limited 
extent. We have been losing our relative position in the great mar- 
kets of the world. That is a ver>^ significant fact, in view of the 
contention always made that we need big business in order to main- 
tain and improve our position in the world market. The figures show 
that during the last 10 years, coincident ^^ith the existence of the 
Steel Trust, we have been losing our prestige in the world's steel 
market, and at the same time the Steel Trust's position in the home 
market has been lessened by the inroads of its independent com- 
petitors. 

The facts point to the conclusion that the Steel Trust, in spite of 
the personal ability of its managers, is disclosing relative ineffi- 
ciency. 



Methods of Dealing with the Trust Problem 579 

Mr. Perkins suggests that systems of profit sharing will be intro- 
duced only by the great publicly owned trusts. Now, in Massachu- 
setts, in Senator Crane's home State, we have had very different 
ideas in this respect and can offer very different examples of profit 
sharing as means of solving these industrial problems. Only recently 
the Dennison Manufacturing Co., one of our most successful indus- 
tries, was capitalized at $5,000,000, with preferred stock entitled to 
8 per cent. But the idea of its owners of real industrial profit sharing 
is this: Every cent that is earned by that corporation in excess of the 
dividends upon the preferred stock is distributed among those (or 
some of those) who do the work, and in the proportion of their sup- 
posed contribution to the success of the business. That is, the profits 
are appKed in the exact proportion to the salaries paid. The Denni- 
son idea of profit sharing is to give the capital a liberal return (and as 
it seems to me, perhaps too liberal) and after that liberal return to 
give to those who do the work all the rest of the profit in addition to 
their fiLxed salaries and wages. The Dennisons are a relatively small 
concern as compared with this great Steel Corporation. But that 
same principle is applied in a nimaber of other and still smaller busi- 
nesses, with some of which I am intimately acquainted. 



What have these trusts done for the consumer? Until the Com- 
missioner of Corporations made his admirable investigations into the 
Oil Trust and the Tobacco Trust we were constantly told that they 
were, by their efficiency, reducing the price to the consumer. That 
claim ought now to be completely exploded, as the result of this 
skillful and elaborate investigation, conducted throughout five or six 
years, for the facts clearly prove the contrary. The trusts have not 
reduced prices. So far as prices have been reduced, it has been in 
spite of the trusts. 



As compared with the relatively high prices and exorbitant profits 
in the trust-controlled articles I want to call your attention to the 
trend of prices and profits in the book-paper business, facts of par- 
ticular significance, because the principal raw material of paper — 
namely, wood — ^is, as you know, constantly advancing in cost. 

Now, while oil and steel and tobacco prices have been rising, or 
have remained stationary, and while the rate of profit in oil and to- 
bacco has grown larger, here are some figures on book paper. In 1889 



580 Industrial Combinations and Trusts 

the average price of book paper in one of the large mills was a trifle 
over 7 cents a pound — 7.06 cents a pound. From that date until 
1 910 the price of book paper has been almost constantly declining, 
in spite of the increased cost of raw material, and in spite of the in- 
creased wages. As I said, in 1889 it was 7.06 cents. In 1890, that 
one year the boom came in, and the price rose to 7.1 cents. In 189 1 
it took its natural course under competition and was do-^m to 6.8 
cents. In 1892, although that was a period of expansion in industry, 
it was down to 6.5 cents. In 1893 it was 6.3 cents. Then it dropped 
into the 5 cents. By 1907 it got into the fours. And later it got into 
the threes. And the average price in 19 10, as I have here, was 3.99 — 
a trifle under 4 cents. 

During that time the cost of manufacture in this highly competitive 
industr}^ was, of course, also diminishing, but not as rapidly, or not 
nearly as rapidly, as the selling price, because competitive conditions 
were constantly reducing the ratio of profit upon that selling price. 
And whereas the profit started at about 20 per cent on the cost, it got 
down in 10 years to 13 per cent on cost, and at the end of another 10 
years it got down to 7 per cent on cost. You have there the most per- 
fect illustration of what competition does in compelling the o'^mer of 
an industry to find some way of reducing costs as a condition of Hving. 

Now I vd]l show you what that way was. It was not by pursuing 
the way of the steel corporations, of increasing the hours of labor, or 
decreasing wages. It was just the opposite. Senator Crane will 
remember that in this very period which those figures cover there 
came a beneficent change in the conduct of this industry (which, like 
the steel industry, and perhaps to a greater extent than the steel 
industr^O requires a continuous process; that is, paper making is a 
24-hour process in many of its departments. Ten years ago and 
before these mills were running their tour workers on 12-hour shifts. 
Labor unions started the agitation for an 8-hour day. This was 
one of the industries where, in the main, there could be no compromise 
on a lo-hour day, because these paper machines and the incidental 
machines had to run continuously 24 hours a day, 6 days in the week. 
The 1 0-hour compromise was impossible. It was either 8 hours, 
as the men demanded, or 12 hours. The reduction of working 
time to 8 hours was made, not only in miUs where the union mani- 
fested itself, but in other mills where there was no union labor what- 
soever. For the unions had, in this respect, as in many other 
respects, created a standard to which the industry had to accommo- 
date itself. The manufacturers, therefore, in this period reduced the 



Methods or Dealing with the Trust Problem 581 

working time of their labor, while their price of by-product was 
steadily going down, and their own percentage of profit was steadily 
going down, and while the cost of raw material was steadily going 
up. Hours of labor in all those departments were reduced $:^^ 
per cent — from 12 hours to 8 hours. And yet while the employers 
made that reduction, instead of reducing wages proportionately, 
the wages increased. 

Take the wages in 1900. The wages of these machine tenders for 
12 hours were $2.43; in 19 10 to 191 1 the wages for 8 hours were 
$2.71. In other words, if the hourly rate of wages be considered, 
you have an increase there of wages of about the equivalent of 66 
per cent. 



These are some of the reasons why, in my opinion, this com- 
mittee should address itself to perfecting the Sherman law, in the 
light of the experience of the past 2 1 years. We have learned much 
about trusts and their ways in these 21 years, and this knowledge 
the La FoUette bill undertakes to use. There has been a lot of talk 
about the uncertainty of the Sherman law, and of the doubt felt 
as to what is reasonable and what unreasonable restraint. The 
difficulty in finding out what is prohibited is, even now, far less 
than has been suggested. 



Senator Cummins. Do not confine yourself to categorical answers, 
but give us your views upon the subject that may be contained in 
the question. 

Mr. Brandeis. I thank you. I have had no belief that up to 
the present time a question had arisen in regard to any corporation 
in that narrow form in which you put it; that is, each one of the 
large corporations I have had to deal with have been objectionable 
on grounds other than size merely. I have considered and do con- 
sider that the proposition that mere bigness can not be an offense 
against society is false, because I believe that our society, which 
rests upon democracy, can not endure under such conditions. 
Something approaching equality is essential. You may have an 
organization in the community which is so powerful that in a par- 
ticular branch of the trade it may dominate by mere size. Although 
its individual practices may be according to rules, it may be, never- 
theless, a menace to the community; and I may add further that, 



582 Industrial Combinations and Trusts 

in my opinion, it was bad legislation which removed all Umits to 
the size of corporations, as we did from 10 to 20 years ago. 



Senator Cummins. Precisely; I was just coming to that. Health- 
ful and reasonable and effective competition is hardly to be looked 
for so long as there is a community of interest in so-called competing 
corporations, I suppose. 

Mr. Brandeis. I so beheve. 

Senator Cummins. That seems to be a deduction from what we 
know of human nature, and therefore if we could provide that these 
great concerns should not have common stockholders we would make 
a very considerable advance toward reasonable competition, I as- 
sume. 

Mr. Brandeis. I think so; but I think that the question of the 
limitation of the size of the corporation, if we had an effective law 
regulating trusts, would not become an urgent question very soon, 
although it may be a simple way of arriving at the result. To express 
a little more clearly what I mean, I will say this: I believe that the 
existing trusts have acquired the position which they hold largely 
through methods which are in and of themselves reprehensible. I 
mean either through methods which are abuses of competition or by 
such methods as were pursued by the steel corporation in paying 
ridiculous values for property for the purpose of monopoHstic control. 

I am so firmly convinced that the large unit is not as efificient — I 
mean the very large unit — is not as efficient as the smaller imit, that 
I believe if it were possible to-day to make the corporations act in 
accordance with what doubtless all of us would agree should be the 
rules of trade no huge corporation would be created, or, if created, 
would be successful. I do not mean by that to say that it is not 
good to have the limitation in the law. What I mean is that I am so 
convinced of the economic fallacy in the huge unit that if we make 
competition possible, if we create conditions where there could be 
reasonable competition, that these monsters would fall to the ground, 
that I do not consider the need of such a limitation urgent. 

Senator Cummins. By that you mean, I take it, at least partially, 
that if we had some regulation which would insure honest capitaliza- 
tion — that is, bonds and stocks, that measure of actual value of the 
property taken in by the corporation — there would be a greatly less 
motive for bringing them together? 

Mr. Brandeis. I mean that; but I mean something more, and it is 



Methods of Dealing with the Trust Problem 583 

this: Go back and see what the real commanding cause was of the for- 
mation of these trusts. In the first place, I do not believe the desire 
for greater eflSciency was an important moving cause. The potent 
causes were two things — one was to avoid what those interested 
deemed destructive or, at least, very annoying competition; the other 
cause, an extremely effective cause, was the desire of promoters and 
bankers for huge commissions. The amount of Steel Trust repre- 
senting bankers' commissions was figured by the Commissioner of 
Corporations as $150,000,000 in securities. 



Senator Newlands. Mr. Brandeis, what limit would you place 
upon the size of corporations? 

Mr. Brandeis. I should not think that we are in a position to-day 
to fix a limit, stated in millions of dollars, but I think we are in a 
position, after the experience of the last 20 years, to state two things: 
In the first place, that a corporation may well be too large to be the 
most eflScient instrument of production and of distribution, and, 
in the second place, whether it has exceeded the point of greatest 
economic efficiency or not, it may be too large to be tolerated among 
the people who desire to be free. I think, therefore, that the 
recognition of those propositions should underlie any administra- 
tion of the law. As I stated before, I believe that it was a very 
serious mistake on the part of our legislators to remove the limit of 
the assets and of capitalization of corporations; that they did not 
fully consider what they were doing. I beHeve it is historically 
true that that Hmit was removed without serious consideration 
by the legislators of the country of the probable effect of their 
action. 

Senator Newlands. Do you think it would be in the power of the 
United States Government, by act of Congress, to limit the size 
of State corporations engaged in interstate commerce, either in 
point of size, capitalization, or area of their operations? 

Mr. Brandeis. I do not suppose it would be constitutional in 
one sense to Hmit their size, but I suppose Congress would possess 
the constitutional power to confine the privilege of interstate com- 
merce to corporations of a particular character. 

Senator Newlands. You have no question about that power? 

Mr. Brandeis. I should think not. 

Senator Newlands. It would be necessary to fix some standard, 
would it not? 



584 Industrial Combinations and Trusts 

Mr. Brandeis. I think so; yes, sir. 

Senator Newlands. Upon which or by which the administrative 
bureau or commission charged with the duty could determine 
whether the corporation was of a size that threatened to become 
a monopoly or that threatened, as you say, social efficiency. Now, 
what standard would you fix; how would you phrase it? 

Mr. Brandeis. I do not think that I am able at this time to 
state the exact provision which I should make. I feel very clear 
on the proposition, but I do not feel equally clear as to what ma- 
chinery should be invoked or the specific provision by which that 
proposition could be enforced. 

Senator Newlands. You do not think that standard should be 
fixed in dollars; you have already stated that. 

Mr. Brandeis. I am very clear that the maximum limit could 
not be properly fixed in dollars, because what would be just enough 
for one business would be far too much for many others. 



Senator Newlands. And yet, if you were establishing to-day a 
standard to which corporations hereafter organized, we will say, 
for the purpose of engaging in both interstate and State commerce, 
should conform, you would not permit any such corporation to con- 
trol 40 per cent of the business, would you? 

Mr. Brandeis. I do not think I should. I mean the more I have 
thought of it the less incHned I have been to allow that. 

Senator Newlands. Would you be wilHng to allow one-tenth in 
a country as large as this? 

Mr. Brandeis. I am inclined to think it could control one-tenth 
with perfect safety. 

Senator Newlands. You would not go below that? 

Mr. Brandeis. I would not prohibit it, and I should be per- 
fectly prepared to allow any appreciable larger percentage to be 
controlled by one company. 

Senator Newlands. You say you would be? 

Mr. Brandeis. I would be prepared to allow considerably more 
than one-tenth. The doubt I had was whether 40 was not too 
much, and I was going down from 40. 

Senator Newlands. Now, if you were to estabHsh such a stand- 
ard, would you apply it only to corporations hereafter organized or 
endeavor to apply it to corporations already organized? 

Mr. Brandeis. I should, in the first place, naturally apply it to 



Methods of Dealing with the Trust Problem 585 

those corporations already organized which had been organized 
in violation of the Sherman antitrust law. . . . 



Senator Newlands. You referred to the unfair methods of 
killing competition, and you gave a statement of a number of 
things which should be forbidden. How would you make those 
unfair methods impossible? Would you punish the corporation, 
or the individual, or the officials? 

Mr. Brandeis. I should punish both; I mean I think the law 
as it stands, giving an opportunity of fine and giving an opportunity 
of improvement, is proper; but I should give — what I should expect 
would be even more effective as a deterrent — the rights to the 
injured individual to enforce through the Government action, in 
a practically automatic way, his claim for treble damages, as set 
forth in the La Follette bill. That would prove a very serious 
burden upon law- violating corporations. 

Senator Newlands. You spoke of community of interests being 
a factor in the prevention of competition. Take the shoe factories 
in New England. There are a number of them, I presume, are there 
not? 

Mr. Brandeis. Yes, sir. 

Senator Newlands. A very large number? 

Mr. Brandeis. In Massachusetts there are over 400. 

Senator Newlands. Would it be practicable there, do you think, 
to prevent individuals from owning stock in half a dozen shoe 
factories, or otherwise? 

Mr. Br.\ndeis. I think it would be perfectly practicable. I 
think as a matter of fact it is very uncommon to-day. 

Senator Newlands. Do you say it is very uncommon? 

Mr. Brandeis. It is very uncommon to-day. I think in the 
shoe industry — I mean in the mere manufacture, say, of shoes — 
there is at present the most perfect instance of competition and 
evidences of the value of competition probably of any industry in 
the country. 

Senator Newlands. Do you mean to say that a person seeking 
investments in the stock of a shoe factory would always confine 
his investment to any particular factory? 

Mr. Brandeis. I do not mean to say they would always do so; 
but I should feel perfectly sure that there was no appreciable 
number of persons who invest in more than one company except 



586 Industrl\l Combinations and Trusts 

in those instances which I happen to know about of particular men 
who are now practically partners in three or four or five businesses. 

Senator Xe\\xands. \\liat I wanted to get at is, would you 
forbid an investor in the stock of one corporation from holding 
stock in another corporation doing the same business? 

Mr. Brandeis. I do not believe that the situation requires such 
legislation. Take it in the shoe business. There are 1,918 shoe 
manufacturers in the United States, or there were at the time of the 
last census. The largest shoe manufacturer in the United States 
does only a very large ^ percentage of the total business. You have 
a situation in that business where there is not the sUghtest danger 
at the present time of the suppression of competition. But when 
you are dealing, for instance, with the tobacco case, where you are 
trying to break up a combination, or where the control of the busi- 
ness has gone into such few hands that it is easy for three or four 
or five or seven or nine people to come together and control an 
industry, then you have a situation where common o-^-nership is 
absolutely destructive of competition. 



Senator Leppitt. But, granting all that — which is one of the 
incidental advantages of large size — you still beheve that in the 
end the very bulk itself would prove a disadvantage and the 
smaller reasonably sized competitor would take away the business 
or diminish it? 

Mr. Bb-\xdeis. I beheve it would, pro\dded the law efficiently 
protects that smaller unit against ruthless destruction through 
methods of unfair competition. 

Senator Lippitt. Taking the laws exactly as they stand to-day, 
do you beheve that if there was no change in the laws, and matters 
were allowed to go on as they are going, that the result would be 
the sur\dval of the moderate-sized competitor, or do you beheve 
it would be the absorption of the business by one huge organization? 

]Mr. Bb-\xdeis. In many instances I think it would be the absorp- 
tion of the business by huge organizations, because the power of 
endurance of competitors becomes exhausted, and it has been 
entirely overcome in a great many cases, for instance, the shoe- 
machinery case. 

Senator Lippitt. Taking aU the features of it, you do not believe 
that the medium-size competitor would be the successful one? 
1 " Small " probably intended. — Ed. 



Methods of Dealing with the Trust Problem 587 

Mr. Brandeis. Not without congressional aid, because I think 
you need not only the law but enforcement of the law. 



Senator Gore. I understood you to say the other day that you 
opposed any method of licensing? 

Mr. Brandeis. Yes, sir. 

Senator Gore. Any method of licensing corporations engaged in 
interstate coromerce? 

Mr. Brandeis. Yes, sir. 

Senator Gore. By that do you mean a Hcense that would consti- 
tute a sort of passport or examination of health and one that would 
extend immunity from prosecution? 

Mr. Brandeis. Precisely: or which might be so construed by the 
community, although it did not actually do so. 

Senator Gore. I want to ask you this: Merely a requirement that 
any company engaged in interstate commerce, without reference to 
method or manner of organization or object, could make application 
to some constituted authority for a license to engage in commerce, 
say for a nominal fee of a dollar, and allowed to have no other certifi- 
cate than merely registration — that so far would not be objection- 
able? 

Mr. Brandeis. It would only be objectionable in that it probably 
would be put to an illegitimate use. That is, it would be used as 
representing practically that the Government is ratif3dng or indorsing 
the propriety of its acts, just as these certificates are found now upon 
cans registered under the pure food act, etc. 

Senator Gore. What I have in mind is merely a Hcense, like a 
saloon man gets to sell liquor — that it is purely formal and perfunc- 
tory to that extent. 

Mr. Brandeis. I see no occasion or no advantage in having a 
license. We have the situation now, that every corporation must 
make a return for the purpose of taxation. 

Senator Gore. I was coming to that. In case we require a license, 
then make it a part of any judgment against the concern, and let the 
revocation of this license deny the right to engage in interstate com- 
merce. 

Mr. Brandeis. I do not believe that that provision, if it should be 
made, is one of great practical value or importance. 

Senator Gore. I do not think it would constitute a strong de- 
terrent. 



588 Industrial Combinations and Trusts 

Mr. Brandeis. I do not think it would constitute any strong de- 
terrent. Among other reasons for this: It is a matter of the greatest 
simpHcity and of neghgible cost to dissolve a corporation and rein- 
corporate another. The question is, What is going to be done with 
this property? and not the question as to whether or not an individual 
corporation has a license or is denied a Hcense. Are we going to take 
an appreciable part of that property as compensation for a wrong 
that has been done individuals? That is an important question. 
Are we going to have that property distributed under conditions 
which prevent its being used to destroy competition or restrain com- 
petition seriously? That is an important question. But the ques- 
tion whether an individual corporation can continue to do business 
as the ''A" company of one State, w^hen it will become the next day 
the "A" company of Massachusetts or Rhode Island, is absolutely 
of no practical importance. 

Senator Gore. That raises this question in my mind: What do 
you think about the criminal prosecution and punishment for direc- 
tors and those who engaged in these practices? 

Mr. Brandeis. I think the criminal law is an extremely important 
adjunct, if it is enforced. It has certainly had a stimulating effect 
in connection with violations of the interstate commerce act of a 
very extraordinary character. Men were ready to do almost any- 
thing that they knew to be wrong until the vision of a jail rose up he- 
fore them.^ And it is an extraordinary thing. I think it is perhaps 
a special testimony to the love of liberty on the part of an American 
that the real thought of going to jail is almost paralyzing to-day; 
and men who violated the interstate commerce law daily and with- 
out any compunction, when it really came before them — the idea 
that the criminal proceedings were going to be resorted to — suddenly 
became obedient, law-abiding American citizens. 



Senator Cummins. Mr. Brandeis, I want to take up for a little 
while the proposal that has been suggested for licensing corpora- 
tions engaged in commerce among the States and with foreign na- 
tions. So far as this inquiry is concerned, I assume that the ideal 
condition would be one in which all corporations engaged in inter- 
state commerce were in consonance, so far as organization goes and 
in respect to their practices and methods, with the antitrust law 
and any amendment that may be made to it. That is the condition 
^ Italics in this paragraph are the editor's. 



Methods of Dealing with the Trust Problem 589 

we want to reach. The Interstate Commerce Commission stands 
very high in the confidence of the people, does it not? 
Mr. Brandeis. To-day; yes, sir. 



Senator Cummins. And in the same way, we could ascertain 
whether a corporation organized as was proposed, by reason of its 
power or extent would be a monopoly, or an attempt to create a 
monopoly, under the second section of the antitrust law, could we 
not? 

Mr. Brandeis. That would be possible. 

Senator Cummins. Now, do you not believe that a commission 
properly organized could pass on questions of that character so 
that the people of the country would be better protected than to 
await the final decision of the court after years of litigation? 

Mr. Brandeis. I am not certain, Senator Cummins, that I under- 
stand your question. But I assume that it applies or would apply 
to practically all corporations that desire for the future to engage 
in interstate commerce. 

Senator Cummins. I am imagining now that we have a clean 
sheet, and are simply providing against the future. I will come to 
the other in a moment. 

Mr. Brandeis. I said it was possible, and perhaps I might state — 
showing you more clearly what I have in mind — the difficulties of 
such a commission. We are to-day especially to be congratulated 
on the character of the Interstate Commerce Commission and on 
their accompHshments. Of course, we have got to remember that 
during a large part of the 24 years of the organization of the com- 
mission there was, for one reason or another, not that satisfaction, 
and that it took a very large number of years and a great deal of 
additional perfecting legislation to enable the commission to arrive 
at the point where they could and did satisfy the public needs. 
Now, the great difficulty which it seems to me to-day the commission 
still labors under is the multitude of questions and the onerous char- 
acter of the duties which it is called upon to perform. They have 
to deal with 236,000 or 240,000 miles of railroad, and the questions 
which necessarily arise in connection with them are numerous. We 
have had the situation with regard to some of the most important 
cases, for instance, Hke the Intermountain case. Now, wholly aside 
from the recent interference with its action by the Commerce Court, 
we have there had a controversy in which the endeavor to adjust 



590 Industrial Combinations and Trusts 

what was a proper rate has extended over a large part of a genera- 
tion. 

We have had all these difficulties, although the Interstate Com- 
merce Commission deals only with transportation, and railroad 
transportation is a business which is practically uniform in its prob- 
lems and in which the problems are largely the same yesterday, 
to-day, and to-morrow. Of course, circumstances differ; but after 
all, the problems of railroad rates, the problems of discrimination 
are largely the same problems throughout the country. When we 
are dealing with rates, one of the commonest methods of decision 
arrived at by the commission is by comparison — a comparison of 
the service and of the charges for a similar service on the same or on 
another railroad. 

When you pass from the realm of transportation to the realm of 
industry the problems, instead of being uniform, are widely vary- 
ing, and instead of being practically stable, they are ever changing. 

The difficulty that I see, or one of the difficulties which I see, in 
appointing at this time a commission with the power of granting 
or denying permission to engage in interstate business rests in the 
fact that the commission would be burdened with the decision of 
questions so numerous that not only one commission but many 
commissions would be unable to compass the work. 

Take the work of the Bureau of Corporations on these few prob- 
lems — the Beef, Tobacco, Steel, and Oil Trusts. The inquiry neces- 
sary to determine facts in regard to the existing business has occu- 
pied six or seven years. 

You propose, in the first instance, at all events, to deal only 
with the future; but an investigation — a very extensive investigation 
— would have to be made before any commission could justly say 
that a license should be granted or denied. An investigation of that 
kind ought to permit the participation of those directly interested, 
either on behalf of the community or competitors, like at hearings be- 
fore the Interstate Commerce Commission. That would tend to 
safety, but also take more time of the commission. We should go ex- 
ceedingly slow in the development of any plan of control by commis- 
sion. The first step ought to be investigation only, to enlarge very 
much the realm and the scope of the powers of investigation. 

At present I should feel that a decision, even though a tentative 
decision by such a commission, resulting in the granting or denial of 
a license might lead us into many erroneous paths. 



Methods of Dealing with the Trust Problem 591 

Senator Cummins. You have advocated here the passage of a 
law which makes 40 per cent of the business, I think, prima facie 
evidence of a violation of the antitrust statute? 

Mr. Brandeis. Presumptive; yes; in case of a combination. 

Senator Cummins. Now, if we can arrive, with the information 
we have now, generally speaking, at the conclusion that any consoli- 
dation or combination that proposes to take in 40 per cent of the 
business is against pubHc policy or against the statute, there cer- 
tainly would not be very much difficulty in the commission arriving 
at a similar conclusion, either increasing that percentage or dimin- 
ishing it, as the case may be. We have enough general information 
to carry us to some conclusions upon this subject of industry. 

Mr. Brandeis. Well, I think the volume of the accessible infor- 
mation is extremely small. For instance, in connection with the 
investigation which I was obliged to make in the Tobacco Trust 
case, I endeavored to ascertain with some exactitude the status of 
the independents. I had the assistance of some of the ablest and 
best versed of all of the independents who had given some thought 
not only to their own business but the business of others. 

Yet there was an extraordinary lack of knowledge on their part. 
None of those men were able to give fully the kind of information 
in respect to their competition — other than the trust — ^which you 
and I would wish to act upon in any important affair of life. I 
dare say if I had had open for me the avenues of the Bureau of 
Corporations — which must have investigated to a certain extent 
also the independents as well as the trusts — I could have gotten 
more information. But whatever information the bureau had 
was the result of a very wide inquiry, and I think if to-day you 
would undertake in any branch of industry to ascertain accurately 
the trade facts you would find that the inquiry would involve a 
considerable investigation the moment you reached what was 
termed the other day the "twilight zone." 

Mr. Brandeis. I am convinced that there is much reason in the 
position which you take, and I heartily sympathize with the pur- 
pose of it. The doubt I have is as to our abiUty to develop safely 
at once the machinery to which can be confided the serious power 
of licensing the corporations, because the effect of such licensing 
will be a certificate of good character as 1 would be an extremely 
potent force. 

^ Thus in original, — Ed. 



592 Industrial Combinations and Trusts 

My doubt goes rather as to what can be done at the present time 
than as to what we may look forward to a Uttle later. My thought 
is — as I undertook to express it in response to Senator Newland's 
questions — that the first step in the organization of such a commis- 
sion would be to give it large and much broadened power of investi- 
gation over any which now exist. Give it full rights to hear com- 
plaints of those who beUeve themselves to be wronged. Throw open 
the results of its inquiries to those w^ho are directly interested in- 
stead of making the great mass of information which is obtained 
subject only to disclosure at the will and discretion of the President. 
All this information, like a great mass of information obtained by 
the Interstate Commerce Commission and by other bodies, should 
be public information to be acted upon by the pubHc. Gradually 
as the machinery of the commission is perfected, and particularly 
as the volume of available knowledge in regard to American busi- 
ness accumulates, we might more safely take the next step of giving 
the commission important powers of decision. It is only a question 
of the time when such powers should be granted. 



Senator Cummins. You have spoken of some of the disadvantages 
which might ensue if a license — or I would hardly call it a license- 
but if the privilege were extended to a given corporation to do busi- 
ness among the States, it occurs to me there are some advantages. 
The corporation, in the first place, should be honestly capitalized 
before it was given this privilege. That is one advantage, no matter 
whether it was organized under the laws of a city or the laws of the 
Nation. The second advantage, as it seems to me, would be that if 
it came to the knowledge of the commission — and it would have op- 
portunities for securing knowledge that could not possibly be had by 
the Attorney General or by the court, for the courts must get their 
knowledge in a specified way — that the corporation was engaging in 
practices that were in violation of the law, or which the commission 
beHeved to be in violation of the law, the commission would say to 
the corporation, "Quit, or your license or permission is revoked." 
Now, if the permission to do interstate business should be revoked, 
even though the corporation might go on subject to the power of the 
court, yet the mere fact of revocation, it seems to me, would counter- 
balance all the disadvantages of holding the permission; and still fur- 
ther, the fact that the permission might be revoked, and thereby the 
corporation prima facie adjudged to be engaged in unlawful prac- 



Methods of Dealing with the Trust Problem 593 

tices, would secure far better observance of the law than we now 
have. 

Mr. Brandeis. This difficulty exists, does it not, Senator? Take 
this very position which you have suggested, of having that commis- 
sion pass upon the question of the revocation of a license. Now, 
that is a question most serious in its character — an inquiry which, 
in the case of almost any corporation, but particularly of a large 
corporation, would involve an investigation in which, of course, the 
corporation must have the amplest opportunity to participate, and 
an issue such as is tried out in the courts — I mean of the same char- 
acter that is tried out in the courts, involving a very long period of 
time. The revocation of that license may practically amount to a 
taking away of half, or a greater part, of the value of all the prop- 
erty of that corporation. 

Now, such a power would have to be exercised most carefully and 
most considerately, and surrounded really by all protection, to in- 
sure a correct and just decision that we now have in the courts. 
Consequently, the investigation would be a matter of a long time. 
The decision of them might necessarily be postponed a long time, 
so that they would not really have speedy redress, or a hasty de- 
cision would be made which all would have occasion to regret. 



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